Bitcoin shows gold the path higher as investors look for inflation hedges - Sprott CEO Peter Grosskopf
(Kitco News) - Although Bitcoin remains an attractive momentum play with prices trading just off last week's all-time highs, gold investors shouldn't see the digital currency as competition, according to one precious metals fund manager.
Instead of the rivalry, bitcoin should be seen as an inspiration for gold's untapped potential in the growing digital marketplace, said Peter Grosskopf, CEO of Sprott Inc.
Bitcoin has seen unprecedented growth as investors and consumers have sought new assets to protect their wealth and purchasing power. Last week the digital currency pushed to a new record high above $66,000 a token. Bitcoin is currently trading just be $62,000 a token.
"There is a reason why bitcoin has hit record highs and that is because there is a counter bet going on against fiat currencies,' said Grosskopf. "People are starting to question the Federal Reserve and starting to question the inflation picture. They are figuring out that they need to hedge U.S. dollar risk."
Meanwhile, the gold market has struggled to attract investor demand as prices remain trapped below $1,800 an ounce.
"Bitcoin's been winning the battle for flows. No question. And that has hurt gold in the short-term, but in the long-term, they're both going to the same place," said Grosskopf.
Although bitcoin is taking some momentum away from gold, Grosskopf said he is excited that the digital currency's market value has risen to $2 trillion and is competing with gold. He added that this is a sign investors are searching for alternative currencies.
"When I look at bitcoin, I see investors who have pulled $2 trillion dollars out of fiat currencies, and I love that. This just shows what kind of potential gold has," he said.
Grosskopf said that if gold wants to compete with the digital marketplace, it has to go digital itself. He added that the gold market is probably about two years away from having a digital presence with enough critical mass to sustain itself.
"I think a lot of the technology needed to take gold digital has been proven," he said. "I expect that gold will eventually go digital and that is going to create a lot of new users and investors.
Similar to how gold-backed exchange-traded products opened up the market for smaller retail investors in the early 2000s, Grosskopf said that a digital market would create new opportunities among average consumers.
Sprott, a global leader in the precious metals market with assets under management of more than $18 billion, hasn't been quietly sitting on the sidelines of this new digital revolution. The firm has invested in various digital projects, including Glint Pay, a credit card that lets users hold their balance in gold. The firm was also an early backer of Tradewind Markets, which created the first digital gold exchange and allowed investors to buy fractional ounces of gold.
Sprott said that the technology is out available, and now commercial bullion banks need to get involved in creating the critical mass required for these digital markets.