It is not a good idea to compare crypto with gold — here is why

• Many experts are advising investors to be cautious while investing in cryptocurrencies.
• The cryptocurrency market went through a correction of sorts, with steep drops in the price of Bitcoin, Ethereum and more.
• Goldman Sachs’ Jeff Currie said cryptocurrencies are not akin to gold.

The recent fluctuation in the prices of cryptocurrencies have confused many. Investors, especially retail investors, are having trouble deciding what to do with their investments. And though there is a barrage of opinions out there, investments are best made when you listen to the experts. So, here’s what experts are saying about cryptocurrencies like Bitcoin, Ethereum and more.

“The bitcoin flow picture continues to deteriorate and is pointing to continued retrenchment by institutional investors. Over the past month, Bitcoin futures markets experienced their steepest and more sustained liquidation since the Bitcoin ascent started last October,” analysts at investment bank JP Morgan wrote in a note recently. “Institutions are unwinding Bitcoin futures and building up long positions in gold futures. And Bitcoin funds are also seeing a steady deterioration, with four-week flow turning negative for the first time,” they added.

JP Morgan isn’t the only one who is advocating caution right now. Jeff Currie, the global head of commodities research at investment bank Goldman Sachs, said that digital currencies aren’t substitutes for gold, alluding to comparisons between Bitcoin and gold as investment mediums.

"Digital currencies are not substitutes for gold. If anything, they would be a substitute for copper, they are pro-risk, risk-on assets. They are a substitute for risk on inflation hedges, not risk-off inflation hedges,” Currie said while speaking at CNBC’s Squawk Box Europe yesterday.

The terms “risk-on” and “risk-off” refer to investor optimism about the market. Essentially, Currie is warning investors from taking too many risks on the crypto market right now. A ‘risk-off’ market is one where investors go for the more dependable investments in order to fend off market uncertainty. Crypto markets are always volatile, so it’s more difficult to find dependable assets to invest in.

With more and more investors treating cryptocurrencies as assets, many have called them “digital gold” at times, referring to the investments people made in gold bars a long time ago. The term is usually used for Bitcoin and Ethereum -- two of the most popular cryptocurrencies in the world. Both have market capitalisation in the billions and are favourites amongst investors.

“Investors need to distribute their buying, and closely follow market movement for at least the next one week,” Nischal Shetty, founder and chief executive officer (CEO) of top Indian crypto exchange, WazirX, said recently.

On the other hand, while experts are advising investors to be cautious, many are also advising governments to formulate policies that would allow cryptocurrencies and blockchain technologies to grow. “Now is the time for India’s policymakers to take the forward-looking approach that many other jurisdictions have taken. Responsible usage of blockchain technology and digital assets can introduce tremendous potential to the Indian economy,” said a policy paper by Ripple recently.

“Under a clear regulatory framework, consumers and businesses can confidently take full advantage of and operate within a safe environment that encourages the use of innovative technology,” the paper added.

Central banks are yet to take a firm call on cryptocurrencies though. The Reserve Bank of India (RBI), the US Federal Reserve, the European Union, and many more are considering issuing their own digital currencies, known as central bank digital currencies, and regulations are definitely going to be affected by these.

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