From Gold To Bitcoin: The Evolution Of Retirement Assets

Gold has traditionally played the role of a conservative and uncorrelated investment vehicle, but that is starting to be seriously challenged by Bitcoin.

Gold has played a vital role in economics and politics, influencing much of human financial activity through shifts in economic systems. It has proven versatile and stable across upheavals and social changes. It even became a vital tool in global trade and currency exchange as we know it today.

In the 19th century, gold was the backbone of the global monetary system. Nations relied on the gold standard until the Great Depression and World War I. These events were significant inflationary catalysts, and economies, in a decades-long transition, abandoned the gold standard.

This process culminated in 1971, when the Federal Exchange could no longer exchange US dollars for gold. In 1976, the gold standard was abandoned entirely, and gold became a free asset.

Today, it is still considered a reliable store of value with a well-established market. After all, it has had the luxury of centuries—through various cycles of prosperity and economic upheavals—to prove its reputation. Gold boasts high liquidity and can be easily traded or sold in multiple forms: bars, coins, jewellery, or other representative instruments.

In retirement investments, gold is an uncorrelated asset, showing an average annual return that has reliably kept pace with inflation. In times of economic uncertainty, investors move to gold because of its reputation as a store of value and its non-correlation with stocks, which makes it ideal during market downturns.

However, today’s evolving monetary technology has provided investors with a new option: Bitcoin. Although it is a relatively new asset whose economic impact is still unfolding, Bitcoin has already been called “digital gold.” It shares many characteristics with gold, including its capped supply and its potential as a store of value.

In addition, Bitcoin offers a new type of value in the age of connectivity. It can be transferred digitally, something that physical gold cannot do. It is the world’s first digital bearer asset, a remarkable feat achieved through the convergence of economic design, cryptography, and decentralised networks.

For investors, the perfect portfolio—a balance of assets that echoes an individual’s risk preference and fits the economic climate of the times—is an ever-evolving target. All investors and professional fund managers seek new ways to add growth and diversification.

Retirees seek investments that provide diversification, preservation of wealth, and stability. On top of these, many retirees seek continued income that can only arise from growth—investments that capitalise on the opportunities of the times.

Finding the right mix of less risky, stable, and higher-risk growth assets has always been challenging for even the most experienced financial planners. Some believe Bitcoin fits into the new retirement portfolio as an added diversifier. Like gold, it can work as an uncorrelated asset and hedge against systemic risks.

Many Bitcoin advocates promote Bitcoin as “digital gold.” This simplified view has been held and promoted by those who believe Bitcoin can serve as a reliable store of value in digital form.

Based on this view, bitcoin investments analogous to gold products are already being created. Just as gold ETFs hold physical gold as their underlying asset, Bitcoin products are structured similarly to these ETFs and provide exposure through funds traded on stock exchanges.

The first applications of Bitcoin ETFs have been lodged in recent years, with multi-trillion asset managers like BlackRock and Fidelity providing optimism about their future. The recent verdict of a DC court on Grayscale’s bitcoin ETF application invalidating the SEC’s argument for denying its Bitcoin investment product has been interpreted as a turning point for the industry.

Proponents of Bitcoin ETFs remain vigilant as efforts to gain approval for a spot Bitcoin ETF persist from prominent asset managers. Depending on how the SEC reacts, Bitcoin ETF approvals may follow, opening the floodgates for increased demand.

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