The analysts said that digital wallets, where people can store cryptocurrencies, are vulnerable to hacking, and virtual currencies also have “significant regulatory risks.” For example, China recently banned cryptocurrency exchanges and put a stop to initial coin offerings (ICOs), the new way for start-ups to raise money by issuing digital tokens.
Goldman also said that cryptocurrencies are subject to network or infrastructure risk during a crisis. For example, there was a “hard fork” this summer when bitcoin split to create a new cryptocurrency called bitcoin cash.
Some regulators, like those in Japan, have allowed bitcoin to be used as a form of payment. Bitcoin can also be broken down into much smaller units. While this may make it look like a better medium of exchange than gold, Goldman said that transaction fees have risen sharply this year. The average transaction fee at its peak in mid-July was just below $9, according to bitinfocharts.com.
The investment bank said that gold is not subject to competition from alternatives. Bitcoin has rival virtual currencies like Monero or Dash for example. There are over 1,000 cryptocurrencies in existence.
And finally, Goldman said that gold “is clearly better at holding its purchasing power, and has much lower daily volatility.” The note said that bitcoin’s volatility averaged almost seven times that of gold in 2017.
The price of spot gold is up over 10 percent this year. Bitcoin meanwhile is up over 400 percent. However, the cryptocurrency has had wild swings in price.
“Cryptocurrencies are not the ‘new gold’ despite their recent popularity,” Goldman concluded.