Nervous speculators in bitcoin and other cryptocurrencies are selling their stakes and returning to gold.
Europe’s leading gold traders have reported a fivefold increase in demand from people wanting to exchange bitcoin as its value plunged this month, triggering fresh questions about its long-term viability.
Daniel Marburger, director of Coininvest, told The Times that on one “crazy” day, January 16, he sold 30kg of gold worth about £1 million to bitcoin investors as the currency fell 23 per cent.
Analysts said that bitcoin’s 40 per cent collapse over the past month raised questions over its future and that of other virtual currencies. For nervous bitcoin owners, who are unable to use the currency to buy the vast majority of consumer goods, to invest in property or to attain mortgages, gold has appeal because of a centuries-long record of holding its value.
“We have been inundated with emails and the phones have been ringing continually with customers asking how they could turn their cryptocurrency into gold,” Mr Marburger said. “It is an unprecedented time and shows the sway from bitcoin and other cryptocurrencies back to a solid, robust investment in these uncertain times.”
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Benjamin Dives, chief executive of the London Block Exchange, which intends to launch a sterling-to-cryptocurrency exchange, said that bitcoin would become more stable.
“The recent dip has shown many new investors the reality of cryptocurrency volatility,” he said. “This same volatility is what attracted these investors in the first place, but they may not be comfortable with the markets moving the other way and so are cashing out to invest in traditionally stable assets such as gold.”
Experts say that British bitcoin investors have mostly been exchanging their currency for gold Britannia or sovereign coins. A one-ounce 24-carat gold Britannia coin was worth £1,009.04 yesterday, meaning that one bitcoin (worth £8,435.06) would buy eight.
Other dealers reported a similar rush to gold as bitcoin’s value tumbled beneath the benchmark $10,000 (£7,219.17) measure last week, although by yesterday it had bounced back to $11,359.
Another gold and silver merchant, Goldcore, said that it had seen a similar trend. Mark O’Byrne, its founder, said: “They [the bitcoin sellers] told us they were concerned that the massive price appreciation was unsustainable and they got nervous about it. We think increasingly people are realising that these digital assets have much higher risk levels than the traditional safe haven asset.” The London Block Exchange claims that one in three British millennials will have invested in a cryptocurrency by the end of next year, at which point digital currencies would overtake bonds and shares in popularity among those aged between 18 and 35.
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Ray Boulger, a mortgage adviser with John Charcol, suggested that the currency would not help young people to climb on to the property ladder, potentially affecting its appeal. He said that only a “minute” number of borrowers would be allowed by mortgage companies to use their bitcoin profits as a home deposit because of money laundering concerns.