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Will Bitcoin Replace Gold as a Modern-Day Safe Haven?

By Avtar Sandu, Senior Commodities Manager, Phillip Futures

Published on April 17, 2018

Avtar Sandu is a senior commodities manager at Phillip Futures. Avtar’s wide spectrum of expertise includes precious and base metals (gold, silver, copper, aluminium), energy and oilseeds (Brent crude, crude palm oil, soybeans) and soft commodities (coffee, rubber, sugar, corn, wheat, grains). He contributes frequently to magazines and newspapers, and is a regular speaker at regional conferences, forums and seminars where he frequently discusses fundamentals, technicals and the outlook for commodities.

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Bitcoin supporters tout the cryptocurrency as the “gold of the digital era” – a safe-haven asset for individuals to park their money in the tumultuous financial world. Avtar Sandu looks at the concept behind safe haven assets and explains why gold investment remains an essential risk diversifier.

The meteoric rise of cryptocurrencies in 2017 was breathtaking for the financial industry as bitcoin’s market capitalisation reached $320 billion at its peak. Financial institutions lamented their lack of active involvement and scrambled for a piece of the pie in the later part of 2017.

Global financial exchanges responded by establishing partnerships with crypto exchanges to create financial derivatives, while fund houses roared on the back of news of plans to launch cryptocurrency exchange-traded funds in 2018.

However, market opinion and the stance taken by regulators worldwide have been deeply divided on the subject of digital currencies. Global financial leaders have derided bitcoin as a massive speculative bubble. Crypto bulls, however, have stood firm at the other end of the spectrum and have branded the digital currency as a contemporary safe haven asset for generations to come.

Examining the concept behind safe-haven assets

As we seek to appraise cryptocurrencies on their claim to be a safe-haven asset, they must be examined against gold, the current incumbent. The gold standard has stood tall historically and has since transited into becoming effectively a safe haven asset that delivers positive returns in times of political turmoil and financial market instability. Its ability to provide capital growth, value preservation and risk management embrace the fundamental tenets of a safe haven asset.

Bitcoin proponents use the term “digital gold” to describe cryptocurrencies because of several key similarities they share with the precious metal. Both assets are globally traded, limited in supply and have been endorsed by market players as alternatives to fiat currency.

With bitcoin’s explosive growth in prices in 2017, a financial hot potato weighs in for investors looking to take part in the digital currency rally: does bitcoin qualify as a safe haven asset?

In terms of market performance, bitcoin has passed with flying colours in 2017. It has repeatedly reached all-time highs since its inception and has made an annual return of 150% over a five-year average, thus outperforming gold. Prices have, however, retraced more than 60% from the highs. Second, bitcoin has fulfilled a secondary criterion, which is the adoption of the digital asset in times of market uncertainty. An actual example is the European debt crisis and Brexit, occasions during which bitcoin prices surged. It supplements assessments on market psychology for bitcoin as a temporary safe haven. Third, bitcoin has been frequently touted as an alternative store of value in countries that are experiencing economic instability.

Asset class dangers

Despite positive statements supplementing bitcoin’s positioning as an effective safe haven asset, its disadvantages have been raised by industry players too. Bitcoin is highly volatile and prices have been shown to fluctuate by up to 20% in one day. Its price volatility has made it undesirable for the majority of investors.

Cryptocurrencies are illiquid compared to gold, as large portfolio shifts have proven to be cumbersome and difficult. Cryptocurrencies are highly susceptible to government intervention and thus affects the market’s acceptance of it as a “true” financial asset class. Crypto-bears have stressed on a possible meltdown, where their monetary value might recede to zero. Lastly, cryptocurrencies are inherently reliant on the internet and technology. Cybersecurity issues have plagued cryptocurrencies, with a recent hacking incident wiping off $500 million in market value. Thus with systemic risks still afflicting cryptocurrencies, the majority of investors are likely to remain unconvinced regarding the prospects of bitcoin as a safe haven asset.

Will gold forge ahead and stand tall?

We assess that the time-tested financial narrative on the precious metal will continue for the foreseeable future. This is largely due to the fundamental principles below:

  • Effective store of value
    The argument for an effective store of value is based primarily on the level of trust it has in society. Bitcoin has struggled with convincing the public about the merits of its wider adoption as key decision makers are uncertain of the long-term prospects of a volatile medium of exchange. Gold, however, has historically demonstrated its abilities for capital preservation and growth. It is frequently utilized in wealth management portfolios and as a risk management vehicle.
  • Market liquidity
    The gold market is extremely liquid with $150 billion to $220 billion being traded daily in over the counter (OTC) markets and global exchanges. Cryptocurrency exchanges are plagued by poor management, cybersecurity issues and slow response times, particularly during market turmoil. Bitcoin’s liquidity pales in comparison with the precious metal.
  • Proven reputation as a safe haven asset
    The precious metal has stood tall amidst stock pullbacks, geopolitical uncertainties, and inflationary and deflationary pressures to the economy. Investors have traditionally sought shelter in gold due to its proven reputation as a safe haven asset. Thus, the precious metal’s position within the trust-based system will continue to underpin demand levels for gold.

How can the modern investor capitalise on gold’s stability?

Investments in the precious metal can be made through various methods. Gold can be traded physically, through OTC markets and on regulated global exchanges with a range of financial derivatives. This gives the modern investor a myriad of choices for their portfolios that can cater to individual preferences or investment appetites.

Most reputable brokers, including Phillip Futures, offer a range of investments in gold, including bullion dealing, spot gold trading, futures contracts and option derivatives. For bitcoin bulls, Phillip Futures also offers bitcoin futures for investors to hedge their risk or take part in derivatives trading. Investors can seek one-to-one appointments with our advisors on financial matters and the viability of gold investments for their portfolio.

Avtar Sandu is a senior commodities manager at Phillip Futures. Avtar’s wide spectrum of expertise includes precious and base metals (gold, silver, copper, aluminium), energy and oilseeds (Brent crude, crude palm oil, soybeans) and soft commodities (coffee, rubber, sugar, corn, wheat, grains). He contributes frequently to magazines and newspapers, and is a regular speaker at regional conferences, forums and seminars where he frequently discusses fundamentals, technicals and the outlook for commodities.

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Singapore Bullion Market Association Secretariat-Lee-Jia-Yi

Lee Jia Yi

OPERATIONS & ADMIN EXECUTIVE
Before joining SBMA, Jia Yi worked as an Admin & Reporting Officer in her previous role. She holds a Diploma in Business & Social Enterprise from Ngee Ann Polytechnic. Jia Yi is responsible for managing and maintaining physical and digital files in SBMA, supporting invoicing processes, reconciling receivables and payables, coordinating meetings and conferences. Additionally, she will provide support to the team and assist the Business Director in managing the Association’s office operations and general administrative activities.

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Emily Oh

OPERATIONS & ADMIN EXECUTIVE
Emily Oh is the Operations & Admin Executive, a seasoned professional who values teamwork and effective communication. She is skilled at adapting to new challenges and takes a proactive and resourceful approach to every task. Before joining SBMA, Emily had experience coordinating international travel arrangements and spearheading community initiatives. Her role at SBMA will be providing operational and administrative support for projects and other matters to the team.

SECRETARIAT SBMA Clara-Chang

Clara Chang

MARKETING & COMMUNICATIONS EXECUTIVE
Clara Chang joins SBMA as the Marketing & Communications Executive, enriching the team with her extensive experience in content creation, social media management, and digital marketing. Prior to joining SBMA, Clara held the position of Marketing Executive at her previous job. She holds two bachelor’s degrees from the University at Buffalo, one in International Trade and another in Geographical Information Science. Her core duties will include maintaining the SBMA website, managing the quarterly Crucible newsletter, among other responsibilities.

SBMA Committee-Photo-john-levin

Mr John Levin

Global Metals
TD Securities
John Levin is the Head of Metal Sales & Trading – APAC at the Toronto Dominion Bank’s Singapore office. Prior to this role, he devoted seven years to leading precious metal sales for the ANZ banking group in his home country, Australia. Notably, from 2009 to 2011, John played a significant role on the management committee of the London Bullion Market Association while serving as the Head of Precious Metals Sales for HSBC Global Banking and Markets in the UK.

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Fabian Lew

MARKETING & COMMUNICATIONS OFFICER

Fabian was a Business Development and Marketing Associate before joining SBMA. He graduated from Singapore Management University with a Bachelor’s degree in Economics.

He has joined SBMA since February, 2022.

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Margaret Wong

BUSINESS DIRECTOR

Margaret Wong, Business Director at SBMA (Singapore Bullion Market Association), brought valuable experience from her previous role at the World Gold Council (WGC). Her tenure at WGC provided her with extensive exposure to the gold community in Singapore and the broader region. This background has been instrumental in establishing strong working relationships within the industry.

Margaret’s role at SBMA encompasses a diverse range of responsibilities. She oversees office management, business support processes, finance, and administrative functions essential for the smooth operation of the team and management committee. Additionally, Margaret handles membership matters, member communications, and addresses public inquiries related to SBMA.

One of Margaret’s key responsibilities is coordinating with the Event Management Company for SBMA’s prestigious annual event, the Asia Pacific Precious Metals Conference. This flagship conference plays a crucial role in the industry, making her involvement pivotal in its success.

Described as resourceful and self-motivated, Margaret Wong brings a wealth of skills and experience to her role at SBMA, ensuring efficient operations and effective engagement within the precious metals community in Singapore and beyond.

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Albert Cheng

Chief Executive Officer

Albert Cheng joined the World Gold Council in March 1993 as a Regional Manager, becoming Managing Director, Far East in 2003. He retired at the end of March 2015 and was subsequently named its Advisor. He has also been an International Advisor to the Shanghai Gold Exchange since 2002.

His marketing career began with Dentsu Young & Rubicam, Hong Kong in the early 80’s. He began gold marketing in July 1985 when he joined the Royal Canadian Mint as a Regional Manager for Southeast Asia.

He was appointed honorary CEO of SBMA in November 2015. He is responsible for the success and strategic development of SBMA, represents the interests of the Association, and is responsible for all the legal and regulatory aspects of the work of the Association. He is the primary contact for regulators and government bodies on bullion market development.

Ms Pawan Nawawattanasub

Ms Pawan Nawawattanasub

CEO
YLG Bullion Singapore Pte Ltd

Pawan is the CEO of YLG Bullion Singapore and founder of YLG Bullion International. She has almost 40 years of experience in the jewellery industry and established YLG in Thailand in 2003. In 2012, she brought YLG to Singapore. She sits on the Board of Directors of the Thailand Gold Traders Association, the Thailand Futures Exchange’s Arbitration Committee, and the Rotary Bangkok committee. She holds a master’s degree in Political Science.

SBMA-Shaokai-Fan

Mr Shaokai Fan

Head of Asia-Pacific (ex China) and Global Head of Central Banks
World Gold Council
Shaokai Fan is the Global Head of Central Banks at the World Gold Council, responsible for advising governments on gold matters, and enhancing the gold market through engagement, dialogue, and thought leadership. He works directly with central banks and sovereign wealth funds on investment considerations. Prior to this position, Shaokai held multiple roles at Standard Chartered Bank, including Director for Asia Strategic Initiatives and Associate-Director for Public Sector coverage. Shaokai holds a Masters of Public Administration from Columbia University and the London School of Economics, and an undergraduate degree in finance and economics from New York University.

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Mr Alan Liew

Head of Bullion & Commodities Trading
United Overseas Bank Limited
Alan is Head of Bullion and Commodities Trading for Group Trading in Global Markets, United Overseas Bank (UOB). Alan joined UOB and started the bank’s commodities trading business in 2014, previously he spent eight years in Standard Chartered Bank (SCB) trading both precious and base metals. During his tenure at SCB, he obtained the SGE gold trader licence and was part of the pioneering team for the SGE business and the FX quantitative trading team. Prior to trading, he worked for Monetary Authority of Singapore in the Financial Risk Management Division. He holds a BSc (Hon) in Computer Science at National University of Singapore and a MSc in Financial Engineering at Nanyang Technological University.

SBMA-Committee-Nikos

Mr Nikos Kavalis

Managing Director
Metals Focus Singapore Pte Ltd
Nikos Kavalis is a founding partner of Metals Focus. He has over 20 years of experience in precious metals, having previously worked for the Royal Bank of Scotland and GFMS. Since September 2019, Nikos has been based in Singapore, where he also runs the local subsidiary of Metals Focus.

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Mr Nuttapong Hirunyasiri

CEO
MTS Gold Global Trading Pte Ltd
Nuttapong Hirunyasiri is the CEO of MTS Gold Group, one of Thailand’s top 10 companies and top 3 bullion companies. He started MTS Gold Group’s first overseas office in Singapore and has been expanding the group business internationally. He focuses on product development and innovation for gold investment, with the aim of being a leader in providing the full suite of gold investment services in the ASEAN region.

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Mr Raman Walia

Executive Director, Head of Commodities Sales – APAC
JP Morgan Chase Bank N.A.

Raman is Executive Director and Head of Commodities Sales, APAC, for J.P. Morgan. He joined JPMorgan in 2008 in New York, moved to Singapore in 2011, and helped expand the precious metals business in the region. Raman has an MBA from Cornell University, and likes to travel in his spare time.

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Mr Andrew Clarke

Head of Brink’s Global Services
Brink’s Global Services Pte Ltd

Andrew Clarke is the Head of BGS (Brink’s Global Services) for Singapore, Indonesia, Malaysia and Brunei. He has held various leadership positions throughout his career in secure logistics and risk management with Brink’s, which started in Hong Kong in 2010. Andrew relocated to Singapore in 2018 to expand the precious metals line of business along with Brink’s portfolio of services and industries.

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Mr Kazuya Naoki

Head of Metals, Asia
ICBC Standard Bank Plc, Singapore Branch

Kazuya (Kaz) Naoki is the Head of Metals, Asia of ICBC Standard Bank in Singapore and is responsible for the precious & base metals sales and trading in the region. He joined Standard Bank Plc Tokyo Branch in 2008 and was relocated to its Singapore Branch in 2013 whose controlling stake was acquired by the Industrial and Commercial Bank of China in 2015. Prior to joining Standard Bank, Kaz spent 11 years focusing on commodity trading and risk management with Mitsui & Co in Tokyo, Sydney and London. Kaz has been serving on the SBMA Management Committee since 2016.

SBMA Committee-Photo-Vinh-Nguyen

Mr Vinh Nguyen

Head of Precious Metals, Asia
StoneX APAC Pte Ltd

Vinh Nguyen joined StoneX Group in Singapore at the beginning of 2008 and responsible for its APAC precious metals activities since 2019 until now.

SBMA Committee-KL-Yap

Mr KL Yap

General Manager, Singapore Refining Business Unit
Metalor Technologies (Singapore) Pte Ltd
KL YAP is the General Manager of Metalor Technologies (Singapore) Pte Ltd’s Singapore Refining Business Unit. He joined Metalor in 2013, initially in Refining Sales. In 2014, he became Refining Business Unit Manager, leading the development of a new precious metal refinery. KL was Vice Chairman of SBMA from 2017 to 2021, now serving as Chairman. With a degree in business commerce, finance, and marketing, he brings prior experience from refinery and heavy industries.