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  • Bitcoin is closer to "digital copper" than "digital gold", according to Goldman's top commodities analyst.
  • That's because bitcoin and copper act as "risk-on" inflationary hedges, while gold is "risk-off," he said.
  • Commodities remain the best inflation hedge because they rely on demand, the bank's research team said.
  • For more stories go to www.BusinessInsider.co.za.

Investors should view digital currencies as a substitute to copper, rather than gold, Jeff Currie, global head of commodities research at Goldman Sachs, told CNBC on Tuesday.

"You look at the correlation between bitcoin and copper, or a measure of risk appetite and bitcoin, and we've got 10 years of trading history on bitcoin - it is definitely a risk-on asset," Currie told CNBC's "Squawk Box Europe."

He said both bitcoin and copper work as "risk-on" inflationary hedges, or situations where investors have higher risk appetite. Gold is a more "risk-off" asset, where investors seek shelter when stocks are selling off.

Copper prices topped $10,000 a ton (R137,000) for the first time in a decade last month, as economic reopening triggered a rally in the metal. Demand has been surging as it's seen as a critical component to the transition to a green-energy economy. Although prices suffered a sharp decline towards the end of May, they again rebounded.

Currie's comments came after a wild few weeks for cryptocurrencies. Bitcoin was last trading 2% higher around $37,190 (R508,000) on Wednesday, and is up about 28% so far this year. The digital token lost more than 25% of its value over the last three months amid a broad crypto sell-off after Tesla suspended bitcoin payments and China announced digital tokens can't be used for business.

Read More: Financial researcher Nik Bhatia explains why asset managers with a growth focus could be violating their fiduciary duty if they don't consider bitcoin - and compares the crypto to Amazon's stock 20 years ago

Currie, who is one of the most widely followed commodity experts, pointed out bitcoin and copper are more similar when it comes to acting as an inflationary hedging - a strategy that involves investing in assets that outperform the market when central bank policy causes prices to rise.

"There is good inflation and there is bad inflation. Good inflation is when demand pulls it, and that is what bitcoin hedges, that is what copper hedges, that is what oil hedges," Currie told CNBC.

"Gold hedges bad inflation, where supply is being curtailed, which is focused on the shortages on chips, commodities and other types of input raw materials. And you would want to use gold as that hedge," he said.

In a research note published Monday, Currie and his team said commodities remain the best inflation hedge because they rely on demand, not growth rates. "Commodities are spot assets that do not depend on forward growth rates but on the level of demand relative to the level of supply today," the strategists wrote.

"As a result, they hedge short-term unanticipated inflation, created when the level of aggregate demand is exceeding supply in the late stages of the business cycle.

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