How safe are Bitcoin
Bitcoin is becoming as safe a haven as gold, one investment analyst told CNBC.
The price of the cryptocurrency has been rapidly rising in recent weeks. It traded above $730 per bitcoin at the end of last week, levels not since February 2014.
According to Chris Burniske, a blockchain analyst and products lead at investment manager ARK Invest, the cryptocurrency could be referred to as digital gold, as it shares many of the characteristics that makes the precious metal a great store of value.
"Bitcoin shares those same characteristics, " Burniske told CNBC in a phone interview. "[Both have an] extremely limited supply and a relatively inert state. Bitcoin and gold can both be used: for example, gold is used in electronic circuits and bitcoin is used as payment.
While gold has performed well in recent months, rising 20 percent year to date, Burniske suggested investors should also consider diversifying into bitcoin.
"When you look at the global markets, there's lots of fear, uncertainty and doubts. You've got people worrying about the equity markets [and] you've got people fleeing into bonds, " he said. "While gold has had a bit of a run in 2016, over the last five year period it's been a terrible performing asset."
"So you've got people starting to wonder where there are safe havens to store their assets. I think you have lot of people saying 'Hey we want to diversify a little bit' making allocations to bitcoin'."
Karen Bleier| AFP | Getty Images
Some disagree that bitcoin should be considered a safe-haven asset. Vijay Michalik, research analyst at consultancy Frost & Sullivan, pointed out that bitcoin is still very volatile.
"Bitcoin is still such a new innovation that the economics of its value aren't fully understood, and the price looks likely to remain moderately volatile in the medium term, " he told CNBC in an email.
"Volatility and the long-term unknowns involved in bitcoin's development stop it from being considered a safe-haven asset like gold. However, because bitcoin is unlinked to any one national currency or macroeconomic factor, it could be a good choice for portfolio diversification."
"In early July, the annual rate of supply inflation will be cut from 8 percent to 4 percent. In basic economics, you cut the supply in half but demand continues to increase, which we're seeing with bitcoin, " said Burniske.
But Burniske did highlight some risks facing the cryptocurrency in the near future.
"There's the risk of the developer community not being able to come to consensus on how they want to scale bitcoin. This has been talked about for the better part of the last year, " he said.
"They have made a lot of progress; they are going to implement something called Segregated Witness and I think the network will scale."
Segregated Witness will reduce the size of each bitcoin transaction, thereby increasing the number of transactions that can be processed at any given time.
Another risk is to the security of the bitcoin's network.
"Part of the concern around the upcoming block award change is that if those miners make less money, then they are less incentivised to throw machinery at the network to secure it."
Meanwhile, gold remains a popular choice for investors looking for safety. Adrian Ash, head of research at investment gold service BullionVault, explained what advantages the precious metal has over other assets.
"Throughout civilisation gold has been viewed as a well-established safe haven used to store value by all cultures in all ages across the word and has never gone to zero in recorded history, " he told CNBC in an email.
"As a physical asset gold cannot default or go bust and is protected by a strong property law which is simple, proven and universally understood."