Bitcoin is similar to gold in a lot of different ways, and most of the volatility that it has been experiencing as of late comes down to the lack of liquidity according to Jeff Currie, who works for Goldman Sachs Group Inc. as the global head of commodities research.
He questions why there has been so much hostility in recent times when it comes to bitcoin while he was being interviewed by Bloomberg Television. He talked about how similar it’s to gold as a result of there being no liability linked to it, as opposed to a normal security.
It was on November 29 that bitcoin smashed through the $11,000 mark for the first time, only less than 24 hours after it had bypassed the $10,000 mark. This means that it has seen gains of almost 12 times over since the beginning of 2017. Gold in comparison has seen an approximate gain of 12 percent this year to date.
Investors largely are still very skeptical when it comes to bitcoin. Many of the world’s leading investors such as Warren Buffet have labeled the cryptocurrency as being a bubble whereas others such as the billionaire co-founder of PayPal and the first investor in Facebook Peter Thiel claiming that people are actually underestimating it.
Some people are even claiming that the reason for the massive price surges in bitcoin is down to the fact that there is currently little to no oversight, which has allowed price levels to get out of control.
Currie claims that the majority of people trading bitcoin do not believe that there is a link with gold.
Currently, there is over $8.3 trillion worth of gold that has been mined, and it is currently above ground, which means that a lot of liquidity exists in the market. Central banks also have a large amount of control over gold and its supply which means that it cannot be a full substitute between gold and bitcoin.
Despite many warnings about bitcoin being a bubble, the cryptocurrency continues to hit new highs. Even the general public who have little to no background when it comes to making investments have been hearing stories about bitcoin holders becoming millionaires in a short space of time and are trying to hop on the bandwagon.
They are trying to get their money invested, which is never a good sign when people are reacting to the hype surrounding a given investment.
Currie concluded his interview by saying that the volatility bitcoin has been experiencing is due to the lack of liquidity that is currently in the market. When you compare the liquidity and the market size of bitcoin with gold, you quickly come to realize how gold can never come close to having a similar sort of volatility as the cryptocurrency.
Bitcoin, in theory, fits a lot of the same molds as other commodities, but the difference and standout feature are in the blockchain and the ledger, not specifically in bitcoin itself.