Bitcoin is often referred to as digital gold but the first scarce digital asset has a long way to go before it even comes close to gold's total worth and widespread use as an investing store of value.
Bitcoin, which has a total value of $92 billion compared to gold's eye-watering $103 trillion, has grown rapidly over the last decade, but its future hinges on uncertain user adoption and favorable government regulation—making its ascent as a global investment asset far from certain.
However, one digital currency asset manager, Grayscale Investments, is working to make that happen—today launching a campaign called #DropGold, aiming to make "investment portfolios to reflect that bitcoin has become digital gold for today’s forward-thinking investors."
"There is a generational shift in how individuals are approaching investing. We strongly believe that investments in gold will be reallocated to bitcoin as Baby Boomers begin transferring their wealth to a younger generation of investors, one that wasn’t raised on the gold standard," said Barry Silbert, founder and CEO of Digital Currency Group and its subsidiary Grayscale Investments.
"The gold industry has done a fantastic job of marketing an overpriced metal but bitcoin has superior physical properties and market utility. I believe that bitcoin will become the store-of-value for our digital age."
Grayscale, which runs the publically quoted Grayscale Bitcoin Trust holding some 1.2% of the bitcoin in circulation, is arguing that despite bitcoin's extreme volatility it can still have benefit to an investor's portfolio.
"The risks of investing in Bitcoin should certainly be considered with the context of a diversified portfolio," said Michael Sonnenshein, Grayscale Investments managing director. "Because of its unique use cases and low correlation to traditional asset classes (i.e., stocks and bonds), bitcoin may offer return-enhancing, risk-reducing benefits to many investors."
According to Grayscale’s simulations, dropping even 5% of a portfolio’s gold allocation and replacing it with bitcoin produced an annualized return that was over 5% higher than that of a pure gold allocation, with lower volatility.
Grayscale, which is the world's largest cryptocurrency asset manager, has its work cut out to convince investors to drop their gold and pick up bitcoin instead, however.
Gold, along with the Japanese yen, is known as a safe haven asset with investors fleeing to havens in times of uncertainty due to their consistent value. The bitcoin price, on the other hand, appears to move independent of traditional market forces, or sometimes for no reason at all.
Earlier this month, Grayscale boasted the unexpected and largely unexplained surge in the bitcoin price took the value of its assets under management to over $1 billion.