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Jul 13, 2021  |  News

Bitcoin & Gold Aren’t Competitors

( William Cai is co-founder and partner at Wilshire Phoenix, a financial services company that offers commodity-based investment solutions. His firm’s first attempt to bring a bitcoin product to market was shot down by the SEC in 2020, but it has persevered. In April, the company filed for an initial public offering for shares of the wShares Bitcoin Commodity Trust, an over-the-counter-traded bitcoin product with a 0.90% expense ratio.

The wShares Bitcoin Commodity Trust would compete with the highly popular Grayscale Bitcoin Trust (GBTC), which has thrived in the absence of a U.S.-listed bitcoin ETF. recently spoke with Cai to get his take on bitcoin as an investable asset, and in particular, its merits versus gold. You’ve discussed how bitcoin and gold aren’t competitors, but complements. What do you mean by that?

William Cai: Gold and bitcoin share many similarities. They can both function as a store of value and medium of exchange. They are both scarce and are mined.

But to an investor, what’s more important is their shared investment properties as diversifiers and hedgers within a portfolio of assets. Both gold and bitcoin have low correlations to other asset classes, and thus may reduce a portfolio’s risk-to-return profile. Both are global assets priced in dollars, and thus are potential hedges to inflation.

However, gold and bitcoin have critical differences that enable them to complement each other within an investor’s portfolio. They have low correlation not only to other assets but also to each other.

Bitcoin has so far behaved as a risky asset; it sells off during times of risk-off and flight to safety, whereas gold is a typical safe haven asset. Bitcoin also has significant growth potential as the bellwether of the nascent cryptoasset and blockchain space.

These notable differences allow bitcoin and gold to contribute value to a portfolio during different economic and market regimes. Given your view, why do you think so many people call bitcoin digital gold, or, gold 2.0? Is it a fundamental misunderstanding of the differences between the two assets?

Cai: “Digital gold” can be a useful metaphor that points to bitcoin’s shared properties with gold. But investors should look past simplified descriptions and analyze bitcoin’s properties as an investment. Instead of focusing on bitcoin versus gold, explore how bitcoin, as a new asset, can contribute to one’s portfolio or trading strategy along with other assets including gold.

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