By Lucinda Shen
February 8, 2018

Bitcoin, the heavyweight of the cryptocurrency world, has billed itself as digital gold—a safe haven for investors to park their assets.

Apparently that image is having an impact. While Bitcoin’s status as a potential substitute investment to the shiny precious metal with thousands of years of human history is debatable, some investors are foregoing physical gold for its significantly younger brethren.

As Bitcoin prices inched toward an all-time high price above $19,500 in December, Byron Salamida, 48, of San Diego took some of his gold coins and decided to sell them at a local precious metals dealer. He planned to take the cash and purchase cryptocurrencies including Bitcoin—as he had been doing for the past two years. After all, while his gold coins were simply sitting there, with roughly the same value minute after minute, the price of the cryptocurrencies he owned was shooting up—seemingly into the stratosphere.

“Why keep something in gold? It’s stable. But why keep it in gold when it stays in a $100 range, when I could buy Bitcoin when it is increasing everyday?” Salamida said.

He was surprised to find when he got to the precious metals seller where he planned to offload his wares that he wasn’t the only gold owner who had the same idea.

The shop owner bought the gold from Salamida for about $5 to $10 below spot price, citing low demand. The owner mentioned he had noticed a recent surge in customers who were selling gold in a bid to buy Bitcoin.

“There was definitely a trend where it seemed like for a month people were selling precious metals for cryptocurrencies,” says Michael McConnell, the owner of precious metal seller San Diego Coin and Bullion, where Salamida has been selling his gold coins for the past two years. “It seemed like it was every day—some days two or three times—[customers] would talk about Bitcoin.”

While McConnell says that the price at which he bought and sold Salamida’s coins had little to do with Bitcoin demand (those prices are actually determined by yet another, larger precious metal dealer), recent research reports have pointed to a larger trend at play.

“The rapidly accelerating popularity and price in cryptocurrencies, such as Bitcoin…diverted substantial amounts of capital away from precious metals last year,” Thomson Reuters analysts wrote of gold demand in the U.S. in their 2017 Gold Survey released in January. “Retail investors tend to have a shorter investment horizon these days and with cryptocurrencies recording parabolic increases over the year, many consumers were not able to withstand the temptation to get on board.”

It’s a relatively recent development, says RBC Capital Markets Commodity Strategist Christopher Louney, who said he has noticed a potential correlation between cryptocurrency prices and the value of gold. While the relationship appeared nonexistent before, Louney said the trend emerged late in 2017 and continued into early 2018—suggesting that as the price of Bitcoin soared into the quadruple digits, some investors may have been offloading gold to pay for cryptocurrencies.

There’s some logic behind the correlation. Gold and Bitcoin certainly have their differences, but in several ways, they also appeal to the same set of investor sensibilities.

“They’re stateless, with some people perceiving both as stores of value,” says Louney. “There’s a similar psychology happening among the investors.”

For Salamida, the two assets did tug at similar heartstrings. One of the reasons why he was attracted to gold was because he didn’t trust the existing financial powers that be.

“I got foreclosed on in 2011. The banks weren’t really working with me to come to a resolution. I was just laid off in 2010. It just snowballed,” he said. “I kind of had a distrust of banks and the monetary system.”

He then made a living off of selling goods on eBay and buying into gold. In 2014, Salamida met Bitcoin, and “everything just clicked into place.”

But Bitcoin’s proponents should stay their hands before crowning the cryptocurrency the new gold.

Louney stresses that the correlation is minor—not quite enough to move gold prices, and not quite enough to say that investors are currently seriously considering Bitcoin as gold’s replacement. Another caveat: the data is sparse. The same macroeconomic factors that have traditionally affected gold prices still dominate the playing field, with stock market performance being one of those factors. Mostly due to rising equity returns, Louney says he expects gold prices to end the year lower than they started, and at around $1,303 on average for the year.

Bitcoin is, after all, far more volatile than gold, and still relatively unknown compared to other investment assets. Gold, on the other hand, is well established with institutional investors and has quite a bit of liquidity. While Bitcoin trading volumes tallied up to just over $3 billion daily in recent trading, gold trading volumes reach $250 billion a day, according to the World Gold Council.

Though that’s not to say a Bitcoin-gold correlation won’t deepen with time, says Looney, who admits he will continue tracking the relationship. Though the emerging relationship also means that the converse may one day also be true—spooked Bitcoin investors could cash in their cryptocurrency in hard times for a less volatile asset.

So it wouldn’t be strange if Salamida, to some extent, wished he had held his assets in something steadier than Bitcoin. After all, the cryptocurrency’s ups and downs have occasionally left him queasy, with the asset soaring to $20,000 on some exchanges in December, before falling below $6,000 earlier this month. Now, it rests just above $8,000.

But Salamida said he is holding tight and waiting for the bottom. He is saving cash from his day job in cybersecurity and from gold sales. He maintains, however, that he would never go into debt to buy cryptocurrency, or use his credit card account to purchase the digital assets.

“I am loading up on cash on the sidelines to accumulate crypto on the dips. Like the old saying from Rothschild, ‘the time to buy is when there’s blood in the streets,’ ” he said.

And to those who have left the fold of the gold bugs for the den of the “crypto crazies“? You’re always welcome back.

“We wish you luck. More power to you,” precious metal retailer McConnell said, professing that he himself knows little about Bitcoin and its peers. “But if you want gold, we’re here.”


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