The chief economist and the managing director of CME Group, Bluford Putnam, has said that he believes that Bitcoin is an “emerging competitor” to gold. According to him, the crypto asset fixed supply rate makes it very different from gold which would likely see more production this year.
Currently, it has been estimated that almost 200,000 metric tonnes of gold have been mined in the world’s history, and each year, around 3000 tonnes are added to the stock level. On the other hand, Bitcoin has a fixed number of supply, only 21 million of the digital coins can ever be mined. However, presently, almost 19 million of the asset has already been mined.
The Chief Economist went on to point out that a fixed supply rate does not automatically translate to less volatility. He added that the opposite could happen when supply becomes relatively inelastic. He then highlighted the fact that “shifting patterns with demand can have very large and abrupt impacts on prices.” This has already been seen in the behaviour of Bitcoin when we saw the price of the asset rise suddenly due to the interest of institutional investors in the asset.
Gold appeal is waning
Putnam has said that his firm has noticed a drop in gold’s appeal as a viable investment tool that can be used to hedge against global political risk. He added that in the last three years, the price swings that we have seen with the precious metal can be blamed on the regular policy changes of the US Federal Reserve.
He went on to explain that equities mostly tend to respond to the same driving forces in the market across the world, and that as the gold-equity relationship becomes more prominent, it would considerably weaken the appeal of the use of gold as a safe-haven for investors.