Gold has been a medium of exchange for centuries and is traded as the most valuable commodity worldwide. It has traditionally served multiple purposes, such as used as a gift or traded as a raw material. The value of yellow metal has increased steadily for many decades. Bitcoin, on the other hand, has seen a meteoric rise, breaking new records and reaching all-time highs. More and more investors and crypto enthusiasts are now comparing the two to evaluate the value they bring.
Historically, gold was considered a safe haven. During a financial crisis or recession, the yellow metal was often used as a hedge against the volatility of the stock markets. Bitcoin has been referred to as “digital gold” in the past and is a fair comparison with gold as they share similar properties.
Bitcoin and gold both have significant advantages over fiat currencies as they cannot be diluted or devalued and both are often viewed as ways to diversify a portfolio.
With gold moving sideways and cryptocurrencies having seen a surge in the past two years, there is no telling which one is better.
While Bitcoin is not yet a safe haven, it has the potential to become one as its uncorrelated status means that it is expected to grow in value and maintain it in times of economic turmoil. A study conducted by Fidelity Digital Assets found that eight out of ten investors surveyed believed that digital assets (cryptocurrency, tokens, Bitcoin ETF, etc.) had a place in their portfolio. In both the US and Europe, exposure to digital assets has increased year on year. Almost nine out of ten respondents said they found digital assets appealing. This number has risen in the regions examined in recent years. Overall, investors are more positive about digital assets today than they have been in the last two years.
Gold is trustworthy
Gold has been present since ancient times. The deepest gold mines of antiquity were in the Maski region, today’s Karnataka. The gold mined was used to make utensils for the royal family and for temple rituals. From then on to today’s jewelry industry, gold has always had value and is considered a safe and reliable commodity. A big reason people respect gold is because given its real and scarce nature, it has proven itself as a hedge against uncertainty. While Bitcoin, which has been around for less than 15 years, hasn’t faced a major financial crisis like the Great Depression (although it was specifically created to avoid such a crisis).
Major institutions like central banks, major government organizations, pension funds, and smart wealth management firms have invested some of their assets in gold. Indeed, maintaining adequate gold reserves against their fiat currencies is a key measure in regulating central banking.
On the other hand, Bitcoin is taking another step towards mainstream adoption. Banks have recognized that their customers are increasingly investing their money in crypto exchanges such as Coinbase, Kraken, and other platforms. To counteract this, many small banks and giants such as Morgan Stanley, Goldman Sachs and JP Morgan are now offering Bitcoin funds to their customers.
Banks have banned Bitcoin to very wealthy individuals and family offices with tens of millions of dollars. Currently, 52 percent of global investors surveyed are investing in digital assets, with Asia and Europe seeing higher investment rates than the US. Current digital asset ownership has been largely dominated by the two leading cryptocurrencies: Bitcoin and Ethereum. Around 37 percent of the investors surveyed have Bitcoin in their (or that of a customer) portfolio, while 20 percent own Ethereum.
The rise of bitcoin and cryptocurrency
The new generation does most of their transactions virtually and does not carry any cash with them. You are more convenient with online and mobile transactions. While gold is tangible, cryptocurrency is not. The argument of tangibility makes little sense for the new generation anyway.
Bitcoin’s exponential growth has given millennials access to a digital asset that is far more rewarding than gold. Bitcoin is guaranteed to be deflationary even at the code level and as such cannot get into hyperinflation. In addition, the transactions cannot be controlled and restricted by the government. In Asia, 100 percent of financial advisors, 86 percent of high-net-worth investors and 53 percent of the crypto HF / VCs surveyed are currently investing in digital assets.
Bitcoin is also a flexible asset. It can be accessed from anywhere as long as you have a computer and an internet connection. Gold, on the other hand, cannot be carried in times of crisis or sold in small fractions. Another important characteristic of Bitcoin is that it is finite, which means that there will only ever be a total of 21 million Bitcoin in circulation. BTC halving halves the reward for mining Bitcoin transactions. This event also halved the rate of Bitcoin inflation and the rate at which new Bitcoins came into circulation. So this deflationary characteristic of the digital asset has the potential to add significantly to its value.
The two assets also have a few things in common:
Rarity: Both gold and bitcoin are scarce resources and cannot be printed like money. It is projected that by 2140, all 21 million bitcoins would be in circulation due to mining.
Transparency: Gold has an established system of trading, weighing, and tracking that is precise. It is very difficult to steal, pass off as a fake, or spoil the metal. Bitcoin is also difficult to corrupt thanks to its encrypted, decentralized system and complicated algorithms, making it one of the most secure systems to be developed for the future as it is difficult to manipulate.
Liquidity: Both gold and bitcoin have very liquid markets and can be exchanged for fiat money.
Underlying: Gold has myriad uses from luxury items like jewelry to specialty uses in dentistry, electronics, and more. Bitcoin itself not only has a new focus on blockchain technology, but also an enormous core value. Billions of people around the world who do not have access to banking infrastructure and traditional means of financing such as loans can send values around the world almost free of charge.
However, the true potential of Bitcoin as a banking vehicle for those who do not have access to traditional banks has yet to be fully developed.
So what is a wise investment?
Is Bitcoin the new shiny gold then? While gold holds a special place in the heart of every Indian, the return of Bitcoin cannot be missing for an investor. It is important to realize that a new era is coming, even though cryptocurrency is a volatile and risky investment. Gold has underperformed well, while cryptocurrency has achieved an annual return of nearly 230 percent over the past 10 years. With this in mind, it is important to make a balanced investment in cryptocurrencies, as these will continue to grow over time, despite the high volatility factor.
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