Akash Jha
Gold vs. Bitcoin: An Overview
Analysts and amateur economists alike enjoy raising alarms about the possibility of a recession. After the Great Recession of the 2000s, the COVID-19 recession came along and was one of the shortest in history. The recurrence of recessions has rekindled investors’ desire to safeguard their wealth as much as possible in the event of a downturn.
Precious metals, including gold, are commonly held by investors as a hedge against inflation. This protects investors from the potential decline in stock value that can accompany a recession. This has been and continues to be beneficial, but there is a new approach that is beginning to pose a threat to this time-tested approach to preserving capital. Bitcoin has been around long enough to gather traction and support, and it is even displaying a few patterns, making it an intriguing asset for investors.
Key points
- Gold is an asset that maintains its value over extended periods of time and is used as a hedge against market declines.
- Bitcoin is immature and unproven as an investment, but cryptocurrency speculators use it as a store of value and hedge against market downturns.
- Which investment is superior depends on your risk tolerance, investment objectives, investment strategy, and the amount of capital you can afford to lose.
Bitcoin
In 2009, Bitcoin was introduced; its decentralised technology ushered in a new era for the financial markets. At first, only a small group of enthusiasts showed any interest in these digital currencies. In 2010, early investors found out that Bitcoins they had bought for pennies had risen in value to $0.09. Large-scale Bitcoin mining operations and mining pools proliferated, and new cryptocurrency exchanges were set up.
Speculators and investors realised that Bitcoin’s worth wasn’t plummeting along with stock values when the Covid-19 outbreak started to shut down businesses globally in 2020. The price of Bitcoin skyrocketed to $61,000 by April 2021 as investors poured money into it and institutional investors sought ways to build financial instruments and funds using Bitcoin.
As the price of Bitcoin widely fluctuated throughout 2021, investors and speculators began using it in a buy-and-hold strategy in the hopes that it would maintain value despite the ongoing pandemic.
Gold
Gold has historically performed well during market corrections because it maintains its value; its price remains relatively stable, then tends to rise as investors flee to gold when a recession is imminent. This makes it a useful hedge — an investment that moves in the opposite direction of another — against market corrections and recessions.
During the Covid-19 pandemic, not all investors shifted to Bitcoin; rather, many reverted to traditional strategies and purchased gold. As a consequence, the price of gold soared from just below $1,300 at the end of 2019 to nearly $2,100 by mid-2020. As economies gradually recovered through 2021, its price decreased, but remained averaging higher than pre-pandemic recession levels.
Key Differences
Gold’s status as a medium of trade and store of value has made it the undisputed market leader for millennia. Bitcoin was introduced in 2009, but it took a while for it to gain mainstream acceptance. When deciding whether to include in your portfolio, other differences can be helpful indicators.
Regulation
Gold’s well-established trading, weighing, and tracking system is spotless. It’s hard to forge or steal, and there are strict rules to follow. When travelling between several nations, carrying gold is a major regulatory no-no.You should only buy real gold if you have a secure place to keep it, and you should only invest in gold through an authorised dealer or broker if you want to do so.
Since the Bitcoin network is encrypted and decentralised, it is also difficult to steal or forge. With a few notable exceptions, it is perfectly lawful to use across international borders. However, the legal framework that could ensure user safety is not yet in place; the anonymous character of cryptocurrencies compounds the difficulty of regulation.
Utility
Gold’s historical uses range widely, from coinage to high-end jewellery to dental and electronic components. Gold’s ability to keep its worth even when the value of other assets declines can be attributed to its multipurpose nature.
Bitcoin’s usefulness is restricted. Only a digital money and a speculative investment at the moment. However, decentralised finance, an emerging financial technology, is based on the idea of using cryptocurrencies for financial transactions. Bitcoin can be used as a medium of exchange in this developing technology for the purpose of borrowing and lending. It could replace gold in nearly as many contexts, but by the same token, it could one day be as worthless as the precious metal.
Liquidity
Bitcoin’s liquidity is a major issue for anyone who are considering buying the cryptocurrency as a safe haven. Although cryptocurrencies are typically relatively liquid investments, this is not always the case. Depending on the context, it may or may not be a more liquid investment option than other options.
Gold may be preferable than Bitcoin if you’re seeking for a liquid asset that retains its value over the near term. Because of its greater liquidity, you may be able to make necessary portfolio adjustments more quickly in response to market shifts.
For instance, if you had several hundred Bitcoin and needed to quickly cash out of cryptocurrencies, you might have trouble doing so because exchanges like Coinbase only permit a daily liquidation of $50,000 worth of bitcoin. If the price of Bitcoin exceeds the exchange’s daily limit, you will be limited to purchasing Bitcoin in lesser amounts. It could be a more liquid asset if you don’t have a lot of Bitcoins. If the market were to fluctuate drastically and many Bitcoin holders decided to sell, the price would fall precipitously.
Volatility
Bitcoin has historically been susceptible to the influence of the media, investor sentiment, regulatory actions, and speculation. Bitcoin’s price could rapidly rise or fall in response to news from the digital currency industry if investors panic and make hasty decisions. Due to the aforementioned factors, this volatility is not endemic to gold, making it possibly a safer asset.
In recent years, a number of alternative cryptocurrencies that aspire to be more stable than Bitcoin have been introduced. These coins are referred to as “stablecoins” because their prices are tied to fiat currency or another stable asset. Tether, for example, is pegged to the value of the U.S. dollar.
Whether Bitcoin is a superior investment than gold depends on your investment objectives, your willingness to speculate, your risk tolerance, and the amount of capital you can afford to lose if the market turns against you. A financial advisor can assist you in establishing investment objectives and determining whether Bitcoin is a suitable investment.
Is Bitcoin Rarer Than Gold?
Gold is among the rarest metals. Gold is rare compared to other metals, just as Bitcoin is uncommon compared to other cryptocurrencies. Both are uncommon within their respective categories.
Is Bitcoin Like Gold?
Bitcoin is comparable to gold in that it has become an alternative investment option for certain investors. It has the potential for multiple applications and can be a worthwhile investment if employed with the proper strategy.
Is Bitcoin a Better Investment Than Gold?
Which is superior depends on your risk tolerance, investment strategy, the amount of capital you have available to invest, and your ability to withstand loss. Bitcoin is significantly more volatile than gold, making it a more risky investment than gold.
Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is highly hazardous and speculative, and this article is not a recommendation by Moneypoise or the author to invest in cryptocurrencies and other ICOs. Before making any financial decisions, a qualified professional should always be consulted, as the circumstances of every person are unique. Moneypoise makes no representations or warranties as to the precision or timeliness of the information contained herein.
