Gold, and sometimes bitcoin, is seen by investors as a "safe haven" in turbulent times. This and the similarities between these two types of assets were discussed in a commentary to UNN by Serhiy Khodakevych, Professor of the Department of Banking and Insurance at the V. Hetman Kyiv National Economic University.
According to the expert, the value of gold has recently shown an upward trend, although prices fluctuate under the influence of various factors.
"Such fluctuations can be attributed to various factors, for example: geopolitical factors, including the military conflict between Russia and Ukraine and between Israel and Hamas, have prompted individual investors to seek safety in gold, and they have been joined by central banks, which have bought 800 tons of gold as of the end of September 2023; changes in the Federal Reserve's monetary policy on rates can affect gold prices. Now, rates are expected to be cut, which will contribute to the growth of gold prices due to increased liquidity and reduced investment risks," explains Khodakevych.
Gold is a stable asset, the expert explains. And such assets are especially in demand in unstable times.
"Gold is indeed considered a stable asset and represents a safe haven for investors on a variety of scales, from micro to global. When expectations for the global economy are negative, investors look for safe assets - such as gold - to preserve the value of their investments.
The impact of investor sentiment on the global economy is that it is a reflection of fundamental factors. For example, if the threat of war or an aggravation of the situation in the world increases, it can cause investors' sentiment to deteriorate and encourage them to seek safe assets.
Such an asset, as mentioned above, is gold, which is considered a safe haven in times of instability. Bitcoin can also be included in this list, as it is often seen as the digital equivalent of gold," says Khodakevich.
The underlying factors behind price changes are partly different for both gold and bitcoin, but both assets are attractive to investors.
As for the similarities between gold and cryptocurrencies such as Bitcoin, they share some common characteristics, such as:
- limited number
- speculative nature
"At the same time, gold is a different asset, unlike bitcoin. Gold is not a technology, its value does not depend on electricity and Internet connection. Physical gold is scarce, durable, used in industry and as a jewelry material, and therefore valuable. Bitcoin is mainly used as an investment tool, Bitcoin is a record, it is a technology," the expert said.
Bitcoin has advantages over fiat currencies.
"It is in demand as an investment asset because it is limited and attractive for long-term investments. Investors buy it because they understand the project and believe in its success. In general, from 2009 to the present, there has been an upward trend in the price of bitcoin.
Although bitcoin is a speculative asset, it is part of the global financial system. It is used by investors and market players as a valuable asset, and its popularity is growing. This suggests that demand for bitcoin will continue in the near future, and its price will continue to rise. At the same time, it is worth noting that bitcoin is not a proven asset like gold. It is best to consider bitcoin as a promising technology. If it manages to achieve widespread adoption and use, it will help solve a number of serious problems in the global financial and monetary system," Khodakevych believes.
When the global situation stabilizes, investors will pay attention to more profitable assets, such as stocks, bonds, real estate, etc.
Recall
Olena Sosedka, co-founder of Ukraine's first fintech ecosystem Concord Fintech Solutions, also believes that instability in global politics and the economy is contributing to the growing interest in cryptocurrencies as alternative assets.
"Bitcoin is often compared to gold because of its properties as a digital store of value. Like gold, bitcoin has a limited supply and is sometimes used as a hedge against inflation. However, bitcoin also has distinctive features, such as high portability, divisibility, and transparency," the expert explained.