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  • Bitcoin does not a pose a threat to gold's status as the currency of last resort, according to Goldman Sachs.
  • "While there is some substitution occurring, we do not see bitcoin's rising popularity as an existential threat to gold's status as the currency of last resort," strategists said in a Thursday note.
  • Speculation by retail investors causes bitcoin to trade as an "excessively risky asset," they wrote.
  • Gold's recent sell-off is largely tied to a vaccine-driven investment strategy that led investors to buy riskier assets, rather than an abandonment of gold, the bank said.
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Bitcoin's rising popularity is not a threat to gold's status as the currency of last resort, but it may be nabbing some demand from the more traditional safe haven, Goldman Sachs said on Thursday.

The world's most popular digital asset jumped to all-time highs above $23,000 this week as its extraordinary 2020 rally continued. The token's price gained 16% across just three days, bringing its year-to-date gain to over 200%.

"Gold's recent underperformance versus real rates and the dollar has left some investors concerned that bitcoin is replacing gold as the inflation hedge of choice," strategists led by Jeffrey Currie said in a note. "While there is some substitution occurring, we do not see bitcoin's rising popularity as an existential threat to gold's status as the currency of last resort."

The bank explained its stance by noting that institutional investors and wealthy individuals avoid cryptocurrency investments because of transparency issues. At the same time, speculative investment by retail investors "causes bitcoin to act as an excessively risky asset."

According to Goldman, bitcoin is the retail reflation trade while gold is a defensive asset with long-term real capital preservation.

The recent decline in gold's price is largely tied to a vaccine-driven investment strategy that led investors to buy riskier assets, rather than an abandonment of gold on the basis of its diminishing value, the strategists said.

"We do not see evidence that bitcoin's rally is cannibalizing gold's bull market and believe the two can coexist," Goldman said.

However, JPMorgan argues that bitcoin has long-term upside potential to compete with gold as an alternative currency. Although the digital asset is favored by millennial investors who aren't as influential in the market as older generations, they will ultimately become more significant in mainstream finance, the bank said.

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