Thus far, the new decade has brought about a significant level of financial uncertainty. But at $2,033.43 per ounce, gold saw its greatest rise in value since the early 1980s.
While gold has always been a reliable way for investors to diversify risk and secure purchasing power, lately we’ve seen a rise of an alternative investment opportunity requiring research and attention. Bitcoin and other cryptocurrencies have made people millionaires, which is enough to seduce many people into investing in crypto.
Both gold and Bitcoin have shown to be volatile. Still, gold has long been considered a reliable hedge against inflation. But times have changed, and it may be time for investors to buck tradition and change too.
Could Bitcoin hold the same value as gold did in the past? Or should investors stick with the tried and true? Let’s take a look.
Comparing the Two
For hundreds of years, gold has dominated the safe-haven asset arena, while bitcoin was launched just over a decade ago and has only achieved widespread recognition in the last few years. Below, we’ll compare these two investment options head-to-head:
1. Transparency, Safety, Legality
Gold’s established system for trading, weighing and tracking is pristine. It’s very hard to steal it, to pass off fake gold, or to otherwise corrupt the metal. Bitcoin is also difficult to corrupt, thanks to its encrypted, decentralized system and complicated algorithms, but the infrastructure to ensure its safety is not yet in place. The Mt. Gox disaster is a good example of why bitcoin traders must be wary. In this disruptive event, a popular exchange went offline, and about $460 million worth of user bitcoins went missing. Many years later, the legal ramifications of the Mt. Gox situation are still being resolved.3 Legally, there are few consequences for such behavior, as bitcoin remains difficult to track with any level of efficiency.
2. Rarity
Both gold and bitcoin are rare resources. The halving of Bitcoin’s mining reward ensures that all 21 million Bitcoin will be out in circulation by the year 2140. While we know that there is only 21 million bitcoin that exist, It is unknown when all the world’s gold will be mined from the earth. There is also speculation that gold can be mined from asteroids, and there are even some companies looking to do this in the future.
3. Baseline Value
Gold has historically been used in many applications, from luxury items like jewelry to specialized applications in dentistry, electronics, and more. In addition to ushering in a new focus on blockchain technology, bitcoin itself has tremendous baseline value as well. Billions of people around the world lack access to banking infrastructure and traditional means of finance like credit. With bitcoin, these individuals can send value across the globe for close to no fee. Bitcoin’s true potential as a means of banking for those without access to traditional banks has perhaps yet to be fully developed.
4. Liquidity
Both gold and bitcoin have very liquid markets where fiat money can be exchanged for them.
5. Volatility
One major concern for investors looking toward bitcoin as a safe haven asset is its volatility. One need look only to the price history of bitcoin in the last two years for evidence. At its highest point, around the beginning of 2018, bitcoin reached a price of about $20,000 per coin. About a year later, the price of one bitcoin hovered around $4,000. It has since recovered a portion of those losses, but is nowhere near its one-time high price point.
Should you invest in Bitcoin?
Now, the big question everyone is asking these days: If Bitcoin is so good, should I invest in it?
Investing in Gold has always been associated with a sense of security. That you can sell your gold at any point of time at a higher price. But when it comes to cryptocurrency, Prof. Anand believes that Bitcoin or other cryptos may not serve this purpose in near future in India.
“Investment in Gold offers a sense of security due to stability in price movement. In the case of cryptocurrencies, price volatility is much higher and it is difficult to estimate the movement of price especially from a short term perspective. Though investors have been able to sell their cryptocurrencies at a higher price from the long term standpoint, sometimes, they may have to wait for the market to recover from any short-term crash to be able to book any profit. Thus, as of now, crypto seems unlikely to serve this purpose in the future,” he says.
“Gold enjoys a special privilege in our society because it is also used as jewellery and has been associated with a festive celebration in historical and cultural context. Investors also prefer to buy gold during festivals because of its tangible form and aesthetic value. It may be right to claim that crypto could be a ‘better investment for more returns’, but gold still seems to be a ‘safer investment’,” Prof. Anand adds.
However, several experts believe that the price of Bitcoin would continue to increase in the long run.
Raza says one should look at Bitcoin as a long-term investment option.
“Even when we buy gold, we hold it for several years. Many families would resort to selling gold as the last option and only during a crisis. One can generate wealth from Bitcoin also if he/she invests in it like gold and for a long duration.”
For many experts, Bitcoin is already the digital Gold of the 21st century. But they underline the need for more awareness and caution.
As Kumar Gaurav, Founder & CEO of Cashaa, says, “Bitcoin has already been digital gold for me for the past few years. However, People still have to understand the fundamental of Crypto to do a head to head comparison and should look more than price speculation,”
Gaurav Dahake, Founder & CEO, Bitbns, says crypto gifting is now catching pace especially among millennials and GenZ’s. “While gold has given an average return of 12-14% in the last 10 years, Bitcoin, with an annualized return of 230% over the same period, has outmarched all other traditional assets by a big margin and presents itself as a very attractive investment avenue in the long run,” he says.
Gold or Bitcoin: Tips for New Investors
Commenting on investment Nischal Shetty, Wazir X founder said, “Some of the leading cryptos like Bitcoin, is often compared to digital gold by many crypto prominents although gold has a virtue to be centennially recognised and accepted both as a ‘store of value’ and a medium of exchange. Hence it is prudent to say that crypto can be considered as the best option for investments.”
Most analysts suggested adding Bitcoin in your portfolio for diversification and hefty returns. “Diversification is the key to building wealth in the long run, as it allows one to deal with the ups and downs of the market. Bitcoin as an addition to your portfolio provides a much-needed boost in generating returns. This boost, in addition to the natural hedge against inflation, adds brownie points to bitcoin. The choice does not have to be Bitcoin versus gold, but it can be Bitcoin and gold. Therefore, we can consider adding bitcoin and some other top cryptocurrencies to our portfolio.
