The recurring recessions are ringing some bells to many investors across the globe. They want to reduce their losses when the next cras hits and most are diversifying their portfolio by holding a bigger portion of precious metals and commodities like gold and oil. Gold, in particular, has proved over the centuries to be an asset that holds value and a great hedge against inflation and market downturns. However a new alternative is challenging this status quo.
Bitcoin, since its launch in 2009 by Satoshi Nakamoto, has made record-breaking returns and earned the trust of millions of investors worldwide. From the limited supply of 21 million available Bitcoins already 19 million have been mined and used in circulation. Since the Covid-19 pandemic began, Bitcoin price has surged in value reaching $68,000 in November 2021, making investors’ eyes glow with happiness. In contrast, gold price reached $2,100 by mid-2020 and has been hovering around the $1,800 mark ever since. Looking at both of these inflation-hedges, it is safe to say that both fiat currency alternatives present good growth opportunities. Nevertheless, whether gold or digital gold is a better investment depends on the risk tolerance, investment goals and strategy.
To get a better understanding, we will take a deeper look into the key differences between BTC and gold in regards to regulation, utility, liquidity and volatility.
Gold has established its dominance on the market for thousands of years and, as such, it’s pristine when it comes to trading, weighing and tracking. Gold is generally purchased from registered dealers and brokers making it highly regulated and very hard to fake. For instance, in most countries you cannot cross borders whilst carrying the precious metal.
Similarly, Bitcoin is also hard to steal or fake, thanks to blockchain technology. Due to its anonymous nature, cryptocurrencies like Bitcoin can dodge most regulatory infrastructures making them exempt from regulation.
Gold’s value goes beyond the market as it can also be used in many aspects of life, such as coins, luxury items, electronics, vehicles, jewelry, dentistry, and much more. In contrast, Bitcoin is intangible and is currently only used as a digital currency or a store of value. The true utility behind Bitcoin is not the asset itself but the emerging technology which Bitcoin uses to lend, borrow, stake, and much more.
Buying Bitcoin has never been easier, however most crypto exchanges have daily maximums which prevent liquidating crypto in large quantities over a short timeframe. In contrast liquidating large amounts of Gold quickly is possible. For small and medium investors these daily limits should not be of any concern and liquidation of cryptocurrencies should be a breeze.
With the increase of interest rates by central banks around the world fighting inflation, choosing an asset class with a good track record to act as a safe haven investment is important.
Bitcoin is by far the more volatile asset as it is subject to the strong media effect, investor sentiment, regulatory actions, hype, usage potential, and more. Over the years, Bitcoin has had large price swings in both directions, however when looking back at the percentage growth over the past 10 years, we can see that it has been in the thousands.
In contrast gold has been steadily increasing but not bearing the growth percentages Bitcoin has been rocking.
In the end it all comes down to what type of investor you are and how much risk you are willing to tolerate.
The Bottom Line
When deciding how to diversify your portfolio, consider a financial advisor before taking any financial decision. Bitcoin and many other cryptocurrencies have proven high returns for many but we believe that a good investment portfolio should not include more than 20% cryptocurrencies as they are considered a risky investment. Putting your money into commodities, real estate and precious metals will probably be a safer hedge against inflation for the foreseeable future than in any digital asset.
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