Mumbai, Aug 29 (FN Bureau) Even as the Reserve Bank mulls launch of a digital rupee by the end of the year in an apparent bid to stem risks involved with investments in highly volatile cryptocurrencies, experts debate if gold can stabilize their volatility. RBI governor Shaktikanta Das on Friday said that the central bank may launch a pilot of its digital currency by December this year. Das said in an interview that the RBI is working on a phased implementation strategy for the same.
While the performance of cryptocurrencies, backed by a strong demand and popularity has overshadowed the performance of gold over the past couple of years, the yellow metal has been a silent performer, because, contrary to the prices of cryptocurrencies, that get impacted due to tweets and inflation for fiat currencies, negligible factors can determine changes in the prices of gold. Also, its consistency, ability to beat inflation by a fair margin, and high liquidity among others are the reasons why gold is considered to be an ideal commodity for cryptocurrencies to be pegged to. Sharan Nair, Chief Business Officer at CoinSwitch Kuber, an India based cryptocurrency exchange, says that cryptocurrencies have been consistently giving the best ROI as compared to most asset classes and while volatility may seem to be concerning, it is a double edged sword because volatility is also what attracts a lot of investors.
“Additionally, crypto volatility is only a concern for short term investors or traders. In fact, if you look at crypto returns over 1 year, 3 year and 5 year terms then it will be quite clear why crypto is still the best ROI generating asset class,” he says. Kumar Gaurav, Founder and Chief Executive Officer (CEO) of Cashaa, an online banking platform to manage fiat and crypto, says gold as an asset cannot be used to curb the volatility in cryptocurrencies market, as it will create a new fork of the crypto and cannot be called Bitcoin/Ethereum. “You can then name it – Gold Bitcoin but then what is the point of buying Bitcoin, instead of Digital hold. Bitcoin have some properties which are transferable, private, immutable and decentralise. The price is derived from these fundamentals. But it also brings the volatility as the market is small.
The only things you can do to have lower volatility is to grow the market,” he says. Citing an example Kumar says gold is an assets class from over 2000 years and an investment pool of 7 trillion dollars while the bitcoin is just about 10 years and 864 billion worth of investments. He adds that trust comes with the age and maybe not 2000 years in case of Bitcoin as it is digital but a minimum timeframe of 50-100 years is needed for it to become the world reserve and replace gold. Ashraf Rizvi, Founder and CEO of Gilded, that allows buying and storing of gold through a mobile app, says that a direct comparison is difficult to draw between Gold and cryptocurrencies. Crypto recently has provided higher returns and significant losses, therefore, it is highly volatile as compared to a stable asset like gold. While cryptos may provide a fast-paced return, as well as significant fall in one’s investment of over 50 per cent in a short period of time, Gold has and will likely continue to act as a hedge where one’s invested sum stays protected almost a 100 per cent with gradual appreciation over time as it has for thousands of years, Rizvi says.
“Crypto is not widely accepted across the world like Gold and in many countries may be considered illegal to own. Although, the final determination still rests with the government. Gold is safe, secure and has stood the ultimate test of time and is held by billions of people across the world and even by nearly all governments. Given the uncertainty around cryptocurrency, Government regulators, the World Gold Council and many others have even pointed out that due to the speculative and volatile nature of various cryptocurrencies, they are certainly no replacement for the yellow metal,” he says.