Digital gold is starting to look slightly more stable than its physical counterpart.
Since its inception several years ago, bitcoin has seen wild prices swings as advocates have tried to establish the nascent technology as a widely-used digital currency. But for the past three weeks, the price volatility of bitcoin has remained below or equal to that of safe-haven gold, according to data analysis from FactSet and CoinDesk.
The last 24 days mark the longest period in which bitcoin prices have been less volatile than gold prices, going back to 2010. Some point to the drop as a sign that investor perception of bitcoin is drawing closer to gold as a safe store of value.
Gil Luria, a managing director at Wedbush Securities who covers e-commerce and payments, said that as bitcoin has gathered steam, it’s taken on a similar role to gold. Holding bitcoin or gold can appeal to a coinciding demographic of investors, since both may be used as an alternative when investors lose faith in traditional asset classes.
“It has a lot to do with the perception of value,” Mr. Luria said. “Gold used to be the only refuge for those who have grave concerns over the global economy and monetary system.”
Bitcoin’s volatility also dipped below gold’s for several days in 2012. But the most recent streak carries more weight as activity has grown substantially, Mr. Luria said. According to Wedbush Securities data, monthly bitcoin transactions increased from 200,000 in January 2012 to more than 6 million in March this year. “There are a lot more forces in balance now,” he said.
Others say the calm may be fleeting. The amount of money in the bitcoin industry, estimated at $6.6 billion by Blockchain, is still dwarfed by the money held in gold investments. According to the World Gold Council, the over-the-counter gold market trades between $180 and $250 billion a day. Given the relative size of the bitcoin market, some attribute the low volatility to a move to the sidelines, as investors await more information on the broader economy, as well as the future of the digital currency.
“There’s generally a holding pattern right now,” said Ishan Singh, director of analytics at TradeBlock, which provides trading tools for bitcoin and other blockchain assets. “We’ve seen some solid volumes to start the year. Even though volatility has been low, people are still interested in trading.”
Still, bitcoin has struggled with regulatory hurdles and security concerns among the broader investing community. Even more stable prices may not be enough to convince institutional investors to pour their money into digital wealth.
It could take a long time before most investors are comfortable with bitcoin as a store of wealth, given its speculative nature, said Phillip Kingston, managing director at financial technology-investing firm Trimantium Capital.
“Bitcoin seems to be stable enough now to be investable to people,” Mr. Kingston said. “But the big difference now is the risk. [When compared to gold], I just don’t think normal investors see the risk as being equivalent.”
UPDATE: A previous version of this post misspelled Gil Luria’s name. It has been corrected above.