- The Chief Economist of CME Group compares Bitcoin and Gold, calls Bitcoin “The new gold rival.”
- He warns that the fixed supply of gold does not necessarily imply less volatility.
- Putnam says that Bitcoin could replace gold as the “new store of value.”
- He adds that Bitcoin must, however, overcome volatility issues.
The Chief Economist for CME, Bluford Putnam, called Bitcoin an “emerging competitor” to gold. This is coming after the crypto market saw Bitcoin inches away from the $39,000 mark.
In a recent CME video posted by Bloomberg, Putnam said that it is likely the supply of Gold rises this year. He commented on the production of Gold and bitcoin while comparing their market sizes.
Bitcoin As A Store Of Value
The statement from Putnam is reminiscent of a similar comment from the Bank of England in January, that crypto could be the new store of value while displacing Gold. The bank then said that bitcoin has to overcome challenges related to high volatility, regulatory acceptance and reputational risk, for it to be a store of value.
However, Putnam also shares this same view when he explained earlier that the fixed supply of bitcoin does not lower its volatility. He warned that volatility is not always low when the supply is relatively inelastic – it is the opposite.
By comparison, the supply of Bitcoin is fixed at 21 million units – which is the maximum number of blocks that can be mined. However, only 18.62 million of the total supply has been mined so far.
Putnam continued that his firm is starting to notice a decline in gold as a hedge against political instability. This becomes important as he noted that the fluctuations in the price of gold during the 2017 to 2020 timeframe was largely due to the U.S Federal Reserve policy.
He also commented that since equities generally respond to similar indicators in the markets in the whole world, the relationship between gold and equity becomes more closely knitted, which in turns weakens gold’s appeal as a store of value.
The Buzz About Bitcoin And Gold
Gold has been run-to-asset of investors for several hundreds of years, to secure against political risks. However, discussions are recently shifting towards cryptocurrency and similar services.
Contrasting Gold and Bitcoin seem quite outrageous to some, as the market cap of Gold is currently over $10 trillion, and that of Bitcoin is estimated at more than $600 billion.
The comparison between the two shows that the total market cap of Bitcoin is about 2.5% of Gold’s total value. However, this is not the big picture for certain investors as they claim that a true measure of the two – ignoring the recent buzz around Bitcoin – is the gain the two assets made last year.
In 2020, gold experienced about 23% growth, while Bitcoin had over 300% growth. This includes the ups and downs both assets experienced last year. However, Bitcoin is still in the hearts of people, fresh as the morning dew, and has come to disrupt the traditional financial world.
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