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Abu Dhabi, UAEMonday 10 December 2018

Bitcoin seen at $10,000 as gold fund joins cryptocurrency party

Precious metals investor to use digital currencies to reap rewards to reinvest into gold and silver

Bitcoin (virtual currency) coins placed on Dollar banknotes, next to computer keyboard, are seen in this illustration picture, November 6, 2017. REUTERS/Dado Ruvic/Illustration
Bitcoin (virtual currency) coins placed on Dollar banknotes, next to computer keyboard, are seen in this illustration picture, November 6, 2017. REUTERS/Dado Ruvic/Illustration

The Old Mutual Gold & Silver Fund, which manages US$220 million of mostly precious metal equities, is jumping on the bitcoin wagon.

The fund started buying in April with a mandate to allocate as much as 5 per cent to cryptocurrencies, according to its manager, Ned Naylor-Leyland. The idea is to take profits from bitcoin as it advances to reinvest in gold and silver assets, he said 16.

“Bitcoin was explicitly designed to be digital gold,” said Mr Naylor-Leyland. “So if you’re going to have a small proportion of a fund in bitcoin, it should be in a gold fund, because that’s exactly the point. It’s about bringing the ownership of disciplined money into the modern world. Bitcoin is paving the way for the reintroduction of gold as global money.”

Bitcoin’s up more than eight times this year to top $8,000 as entrepreneurs in the field say its value lies in proof of concept for a new kind of payment system not reliant on third parties such as governments, big banks or credit-card companies. By contrast, gold has held in a tight range since February, with a short break upward in September as US and North Korea tensions spiralled.

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The virtual currency has many backers and detractors. Mike Novogratz, who is starting a $500m hedge fund to invest in such assets, said bitcoin will probably end the year at $10,000. Standpoint Research’s Ronnie Moas on Monday raised his 2018 price target for the second time this month, to $14,000 from $11,000. But Goldman Sachs last month said gold wins out over cryptocurrencies when assessed on most of the key characteristics of money.

Bitcoin and blockchain resolve gold’s problems of divisibility, ownership and speed of transmission, said Mr Naylor-Leyland, who is investing through a Swedish-listed exchange-traded fund. “We’re going to revert to sound money,” he said. “If you imagine sound money and blockchain together, there’s quite an exciting potential outcome.” His fund has about 80 per cent in gold and silver equities and most of the rest in physical metal.

Bitcoin traded at about $8,240 as of 10:55am in Singapore on Thursday, some $130 short of its record on Tuesday. Spot gold was at $1,290 an ounce.