Mansoor Mohi-uddin, the chief economist of the Bank of Singapore wrote that cryptocurrencies could replace gold – the traditional safe-haven asset – as electronic stores of value.
The economist, who was appointed to his position in June 2020, argues that there are several hurdles that digital currencies have to overcome before they can be certified as stores of value that compete with gold.
Cryptocurrencies as stores of value
Bitcoin was designed to function as a private currency that could not be influenced by governments in the same way that fiat currencies could through quantitative easing and other measures.
However, the most likely role for digital currencies is as stores of value and they have the potential to compete with gold as safe-haven assets.
Cryptocurrencies have several advantages over gold, says the bank’s chief economist. The younger generation like digital assets. And it is easier to hold cryptocurrencies in digital wallets.
This is very different from precious metals that need to be stored in secure physical locations. Mansoor also pointed out that there are similarities between gold and cryptocurrencies. Digital currencies like bitcoin have a finite supply just like gold.
2020 was a good year for bitcoin as it saw a surge in interest from institutional and retail investors, pushing the price of the leading digital asset to record highs.
Bitcoin was up more than 300% in 2020 and became the best performing institutional asset of the year.
Despite this incredible run in 2020, Mansoo notes that investors are likely to dump cryptocurrencies in a financial crisis.
Amid the coronavirus panic sell-off in March last year, bitcoin’s price tumbled below $4,000 only to rebound on its way to setting new record highs.
Cryptocurrencies face several risks that need to be addressed before investors can allocate digital assets into their portfolios.
Institutions require custodial services to store their cryptocurrencies. The industry has seen too many hacks and at the same time, bitcoin holders need to take good care of the private keys, or else the loss of those keys could translate to the loss of great wealth.
Digital assets also need to overcome liquidity challenges and volatility must be lowered to acceptable levels.
In the end, the Bank of Singapore’s chief economist concluded that digital currencies may partially displace gold over time as electronic stores of value.