Dubai: Many believe that gold has a new competitor in the form of Bitcoin.
In the digital world, investors are preferring to invest in Bitcoin as a safe investment. But the size of the total market is so small, that it is not even one per cent of gold’s market. Bitcoin has a market cap of $60 billion (Dh220.3 billion), and is increasing at a rapid pace every minute, whereas gold has a market cap of $7 trillion.
“People talk of Bitcoin as the new digital gold 2.0. Despite the fact that we have reached an all-time high, Bitcoin is only about $55 billion of worldwide value,” said BTCC chief executive officer Bobby Lee.
Room for appreciation
But unlike gold, experts feel that Bitcoin has more upside.
“All the asset classes are at trillion-dollar levels. Gold itself is at $7 trillion, and many of the assets classes are much higher. Bitcoin is just 1 per cent of all the gold out there. I think, as a substitute for gold, Bitcoin has a room for a lot of price appreciation,” Lee said.
For example, gold has shed 5 per cent so far in the year in value, compared to a staggering 412 per cent gain in Bitcoin.
“My take is that the rally that you see now is driven by speculation. There is a growing belief that Bitcoin prices are going to go up in the long term and this has become a self-fulfilling prophecy. The wider international recognition and potential regulatory approval for the proposed Bitcoin ETF are events that can create upsides,” Promoth Manghat, CEO, UAE Exchange said.
Ari Paul, co-founder of BlockTower Capital, says that even if Bitcoin prices crash, it will still be the best performing investment.
“If Bitcoin [or the cryptocurrency market generally] collapses 50 per cent from current levels, it will still be the top performing asset class of 2017. Even after a 50 per cent drop, it will beat stocks, bonds, commodity indices, active absolute return, and real estate,” Paul said in a LinkedIn update.
Bitcoin prices, known for wild swings, have gained from a low $800 to a record high $4,100. Bitcoin prices fell to a low of $2,200 in June, just before a technological upgrade.
Another factor that adds to the attraction of Bitcoin among the investor community is the low corelation with other assets like equities, bonds, gold and other commodities.
“Aside from its upside potential and high volatility, one of the most interesting aspects of Bitcoin for institutional investors is its low correlation to major asset classes,” said Charles-Henry Monchau, managing director- chief investment officer and head of Investment Management at Al Mal Capital.
“If I have a portfolio of low-risk stocks, and I add a highly volatile asset like Bitcoin to it, my risk goes down because the more volatile Bitcoin has a low corelation with equities,” Paul from BlockTower said on his Twitter page. “It is corelation and not volatility that drives overall portfolio risk. What adds the risk is high corelation.”
Driven by the large interest in the cryptocurrency, traditional fund managers are taking a closer look at Bitcoin.
“There is a lot of interest in Bitcoin, but it is still early in getting access to technology. It is not as accessible and easy as it is to get other things. We are looking into how we can offer that to clients. We have a few proxies like some listed securities or ETFs,” said Kay Van-Peterson, global macro-strategist at Saxo Bank.
The UAE-based Al Mal Capital feels that a key barrier to the adoption of Bitcoin and other cryptocurrencies as an asset class within traditional portfolios is the lack of available institutional quality investment vehicle.
“The emergence of regulated investment vehicle will probably help the rise of Bitcoin and other cryptocurrencies within global portfolios,” said Monchau from Al Mal Capital, which offers access to Bitcoins to clients.
What Bitcoin investors in the UAE say:
Henry Carvalho, finance manager with a private company in Abu Dhabi
“Bitcoin is the future. I first started doing my research in 2009 and missed the chance due to lack of validated buying options. Right now we have very good options to get into it and still be in a position to make good profit. Based on the total supply to the current market circulation it will only increase and might hit $500,000 within 10 years. Explosive ROI. It will be like internet and will be part of our lives in the future.”
Mohammad Jabir, IT manager in Abu Dhabi
“I invested to see what the bitcoin market [was like]. I started with little money and bought at a lower level and sold at a high within two to three weeks. I’m in two minds to invest more because I had to struggle the last time to get my money back. And most worrying, it is not regulated, so I can’t go anywhere to get my money back. I’ve been trading equities in Indian markets, and I plan to invest more in Indian equities. I’m completely out of Bitcoins, because of regulation issues. If it is regulated I would definitely start re-investing.”
Hitesh Khatwani, banker based in Abu Dhabi
“I’ve been investing for 6-7 months, when bitcoins were valued at $800 (Dh2,939). I exited a couple of times at profit. It’s very speculative. The returns are good which is why I’m investing. There is news that it is going one-way. I used to invest [in] equities, futures and options mostly. I got attractive returns from Bitcoin, and my investments have tripled over the last six to seven months. I’ll keep on holding Bitcoins as long as I’m not incurring a loss.”