André Dragosch (Photo: Bitwise)
Rising debts worldwide, geopolitical tensions, an upset trade war and the concerns about a new arms race do not stop at the stock exchanges. Many investors are looking for ways to secure their portfolios in uncertain times. 2 asset classes have established themselves as value -placed stimulants: gold and Bitcoin.
The precious metal has been a safe harbor for 5,000 years to secure assets. The Bitcoin, in turn, is considered a “digital gold”, which at some point may even run the rank. We spoke to André Dragosch, Head of Research at Bitwise, why it can make sense to keep both assets.
ftd.de: Mr. Dragosch, gold is currently experiencing a high. The first time the 3,000 US dollar per ounce has been broken for the first time. What is the precious metal currently doing?
André Dragosch: There is no single factor, it has several causes. On the one hand, investors see increasing government debt worldwide. This assumes scary extent in many countries. The situation in the USA, the largest economy in the world, is particularly problematic. State debt has achieved a historical record level there with $ 36 trillion-$ 123 percent of GDP. Debt growth has accelerated considerably after the Corona year 2020 and grew by 7.43 percent per annum. The growth of the US economy was therefore expensive. In connection with the increasing budget deficits in other countries, this ensures constant demand among investors. However, the outbreak of the Ukraine War has ensured a rethink among many countries and central banks.
ftd.de: What exactly was the cause of this?
Dragosch: The United States and allies have reacted with massive financial sanctions as a result of Russia’s invasion of its neighboring country. Russian assets were frozen abroad, including US state bonds. This led to a growing distrust of the US dollar and the United States bonds. And it also questions the established global currency regulations in the eyes of many countries and economists.
ftd.de: What reactions did this result? After all, Russia and Russian citizens were particularly affected by these sanctions?
Dragosch: Due to these sanctions and freezing foreign credit, trust in the security of US state bonds has dropped massively. Obviously, many steerers have wondered whether their US state bonds are safe if the relationships with the United States cool down or even worsen massively. Subsequently, central banks were increasingly performing as a buyer on the gold market and the gold content on their reserves rose. Conversely, US state bonds were reduced in the reserves. China in particular, but also many other countries, have reduced their risk in US state bonds. According to the global industry organization World Gold Council, the central banks have been the largest buyers on the gold market for years.
ftd.de: And how does the new customs policy of the US government play?
Dragosch: Of course, this increases the uncertainty for the stock exchange and economy even more and is likely to further reduce confidence in the USA and its bonds. Because a possible increase in import tariffs could heat the inflation of import prices. In addition, there could be delays in supply chains and an increase in raw material prices. In the end, this leads to a higher inflation and this strengthens the demand for valuable systems, i.e. alternative hard assets such as gold or bitcoin.
It is not surprising that investors are looking for alternative hard assets to diversify their systems, especially from US treasuries.
ftd.de: Speaking of Bitcoin: After Donald Trump’s election victory, the cryptocurrency was not as stable as it was hoped for by some. The round mark of $ 100,000 was quickly reached, but it is currently going downhill. Is the Bitcoin really a value preservation means how it is attributed to gold?
Dragosch: The Bitcoin is a special feature that also characterizes gold: in contrast to Fiat currencies such as the dollar or the euro, the Bitcoin cannot simply be printed and its number is thus driven up. The finiteness in the DNA is programmed for Bitcoin. As soon as the crypto-miner have grown 21 million coins, it is over. Bitcoin such as gold is therefore suitable as an infalction -resistant value -added preservation. In addition, Bitcoin has an advantage due to the better transferability compared to physical gold. Last but not least, the Bitcoin, like almost all systems, should not be viewed at short notice. In the long term it was shown that investors with Bitcoin can increase their portfolio performance. Our analyzes show that with a share of 3 to 5 percent Bitcoin on the depot volume investors in the past over 5 and 10 years could double their overall return.
A balanced allocation between Bitcoin and gold can optimize the risk -clear yields.
ftd.de: So is Bitcoin already the “digital gold” than many fans see?
Dragosch: So you can see it, but there are also differences to gold. The precious metal is still the dominant anchorage for investor funds and a strong protection against market dwelling. Bitcoin is more volatile, but at relaxation it offers higher returns. Bitcoin also has a lower correlation with US state bonds, which makes it a valuable diversification instrument, in particular as a security against the default of payment of states. A balanced allocation between Bitcoin and gold can optimize the risk -clear yields.
ftd.de: Bitwise Asset Management has presented an ETP that combines gold and Bitcoin. How does this ETP work?
Dragosch: The Bitwise Diaman Bitcoin & Gold ETP (BTCG) is an ETP emitted in Germany and depicts the Diaman Bitcoin & Gold Index. This ETP is completely secured by gold and Bitcoin – with professional custody. We rely on a dynamic allocation strategy in which cyclic market movements and temporary price corrections are used for performance optimization. The strategy aims to benefit from cyclical trends and relative short -term price faults. In this respect, the ETP combines the stable value preservation of gold with the growing role of Bitcoin as inflation protection and performance driver. At the moment the product is listed on the Euronext Paris and Amsterdam securities exchanges, and should also come to the Xetra in the coming weeks.
ftd.de: Mr. Dragosch, thank you very much for the interesting conversation and continued success!