WHY GOLD, BITCOIN DAZZLE—BUT NOT FOR SAME REASONS

Gold and Bitcoin may both be glittering this season—but their shine comes from very different sources.

- JOYDEEP SEN

One thrives on history and stability; the other, on speculation and digital faith. The ongoing rally in gold and Bitcoin—beside the 10 October selloff—has been eye-popping. Yet, unlike equity and debt, which are staple portfolio assets with tangible fundamentals, gold and crypto are outliers.

Inequity stocks, investors back proven businesses with growth prospects. In bonds, the certainty lies in a committed coupon. Gold, on the other hand, acts as a ‘portfolio diversifier’. Historical data shows that even a 10% allocation to gold can improve a portfolio’s risk-adjusted (.e., volatility-adjusted) returns. In short, gold helps optimize outcomes, not drive them.

Gold versus the digital token

Gold, as we know, doesn’t produce anything. Its industrial applications are limited, and demand largely stems from central banks and jewellery buyers. Cryptocurrencies, meanwhile, are still struggling for identity.

Whether Bitcoin is truly an investment asset is debatable. If it isa currency, well, itis accepted in some parts of the world, for goods and services, but on a private basis. It is not legal tender currency in any country, except El Salvador.