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Bitcoin Is Not Real Currency, It's 'Nothing Like Gold' - Currency Expert

Kitco News

(Kitco News) - The surge in interest in cryptocurrencies like bitcoin has got some investors questioning whether or not they can eventually replace gold as an alternative currency, but to one expert and longtime gold watcher, that is not the case.

“Cryptocurrencies are nothing like gold,” Steve Hanke, professor of Applied Economics at Johns Hopkins University, told Kitco News in a phone interview Thursday.

Hanke, who was recently recognized by the University of Liechtenstein as one of the world’s leading authorities on currencies and alternative currency regimes, argued that virtual currencies like bitcoin and ether are not real currencies.

“At present, they are just speculative assets…they are unstable units of account and that’s why they’re not currency,” he explained.

People are looking for substitutes to government money and that’s what makes cryptocurrency attractive.”

But, unlike gold, these alternative coins have seen extreme volatility -- some posting quadruple-digits gains since the start of the year. For that reason, Hanke said they are unsuitable substitutes to the yellow metal.

“That said, cryptocurrencies will have a prominent place in the future. They will come up with an attractive, stable unit of account in the cryptocurrency space,” he said. “But hopefully governments will stay out of this thing.”

Given gold’s long history and proven track record as a store of value, Hanke said he isn’t invested in cryptocurrencies and instead, is sticking with the yellow metal, noting that $1,400 is still possible this year.

“Given where we’re trading today, gold’s a buy,” he said. “I’m definitely not a bear. I would definitely hold gold in a portfolio. I mean, central banks have been buying and I think it’s wise.”

Gold prices have fallen under pressure following the Federal Reserve’s most recent meeting where the central bank hiked rates by 25 basis points. The metal saw an uptick on Thursday from five-week lows with August Comex gold futures last trading at $1,253.60 an ounce.

Hanke is not too concerned with the Fed’s perceived hawkish tone and warned that the central bank may be getting ahead of itself.

“I think they’re focusing so much on the interest rate, which is just inappropriate. The thing to be focused on is the money supply,” he said.

As he explained it, changes in the broad money supply will affect changes in nominal economic activity, which makes it a better gauge of economic recovery than just tracking the Fed’s rate hike trajectory.

“Broad money supply is growing but not so fast, at 4.4% -- so I think the Fed is gotten ahead of themselves in this rate increase and tightening talk,” he said.

“My expectation is that we will not see any acceleration in growth in the U.S. and they’ll have a tendency to put off these rate increases because the economy is not really strong.”

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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