One of the big annual events in the gold investor’s world is the In Gold We Trust report issued each mid-year by Incrementum, an investment house based in the principality of Liechtenstein.
The editorial team has stuck to the gold story like glue, and recently veered off into silver (they think the 2020s are going to be silver’s decade).
Now they have gone full steam into the crypto space.
While Incrementum has included a section on cryptos in its annual update since 2016, this time the report has gone a step further.
The analyst’s view: cryptocurrencies are coming into their own due to “monetary climate change” (a result of central banks flooding the world with liquidity), and these now back up gold as a safe haven.
One of the highlights of this year’s report is a section that might take many by surprise (given Incrementum’s “there is nothing to challenge gold as an investment” stand over many years, that new section headed “Bitcoin & Gold — Our Multi-asset Investment Strategy in Practice”.
Market for liquid, non-inflationary assets is growing
The firm says its own track record with its investment strategy consisting of Bitcoin and gold has so far delivered “outstanding” investment results, “meeting our high expectations”.
There is a caveat: “Although we believe that the role of digital stores of value will increase further, we do not expect Bitcoin to replace gold as a store of value”.
The two can live and work together, though.
Due to the changing monetary world, the firm argues that there is a growing market for liquid, non-inflationary assets.
Rising price inflation and even lower real interest rates will further fuel hunger for these value-preserving assets, the report continues.
The authors expect investors will increasingly use portfolios combing both cryptocurrencies and the yellow metal.
Strategy: 25% Bitcoin, 75% gold
Incrementum initiated such a strategy in February 2020, and the results have been impressive — a return of 131.2%.
Breaking that down, gold gained 10.7%, but Bitcoin put on 520.9%.
Importantly, the combination of the two investments “significantly” reduced risk during the period since early 2020.
“This is remarkable in that the strategy remarkably outperformed gold during the observation period,” the report concluded.
‘Bitcoin needs gold to exist’
Some of the quotes that run down the margin of the report are worth repeating.
From Roy Sebag, the Canadian-Israeli contrarian investor: “Bitcoin needs gold to exist. Gold doesn’t need Bitcoin to exist”.
From the New York house (and controversial performer) ARK Investment Management: “Because of Bitcoin, we are witnessing a global battle among monetary systems, both sovereign and non-sovereign. As an open, neutral, and permissionless global monetary system with no reliance on the state, Bitcoin is in a good position to win this battle”.
ARK last week bought US$20 million worth of Bitcoin, taking advantage of crypto’s price plunge.
And this from Britain’s Charlie Morris, who runs a blockchain analysis project and is an expert in digital currencies: “Gold is Bitcoin without the electricity”.
Regular rebalancing necessary
Incrementum says it has concluded from analysis of the strategy that a combination of cryptocurrencies — especially Bitcoin — makes sense within a diversified investment strategy.
“In our view, it is most effective to define a certain strategic allocation of cryptocurrencies and to rebalance them regularly,” says the report.
In this way, the high volatilities of the digital currencies can be dampened or used in favour of the investor.
Incrementum is satisfied that a combined crypto-gold portfolio seems to be “particularly suitable” for this purpose.
“This is because of the relatively low correlation and the high volatility differential have a favourable effect on the so-called rebalancing bonus,” the report added.