A rising inflationary pressure causes investors to worry about the value of their money. While owning gold might be an excellent way to protect your purchasing power, cryptocurrencies have become popular over the past few years.
Bitcoin is becoming a popular investment option for institutional and retail investors alike. You may wonder if you should invest in this new asset or stick to something more traditional, like gold. To learn more about both, keep reading:
The safe-haven asset of gold is traditionally regarded as a viable investment choice. There is a long history of yellow metal used for investment purposes; it is valuable as a material for consumer goods, such as jewelry.
Furthermore, the liquidity of gold has remained stable throughout history. Around the world, gold is the asset people turn to when other assets do not provide stability.
In the aftermath of global equities market instability or political tensions between significant countries, gold prices spike dramatically. Gold's price is relatively stable and doesn't decline significantly, even during a crisis.
With Bitcoin, you can buy, sell, and invest no matter where you are. According to Satoshi Nakamoto, bitcoin's pseudonymous creator, there are 21 million total bitcoins.
A decentralized cryptocurrency, Bitcoin is created by combining the processing power of "miners." These companies, individuals, or groups verify Bitcoin transactions and receive bitcoins for their time, computational power, and effort.
Many cryptocurrency enthusiasts believe bitcoin will eventually outperform gold bullion, thus the nickname "digital gold" for the virtual currency. Recently, Indian investors have shown great interest in cryptocurrency, with many jumping on board the bandwagon.
Financial assets are subject to volatility, which refers to short-term price movements. Rather than looking at whether the asset's price rises or falls, the metric focuses on how fast the price tends to change in one direction or another.
High volatility assets are riskier, while low volatility assets have slower, more predictable price movements. To compare the two assets, here is how their volatility is ranked:
Cryptocurrencies like Bitcoin are among the most popular alternative investments in the world but are also highly volatile. It is typical for the digital currency's price to increase dramatically during periods of an upswing. Still, it is equally common for its price to fall dramatically during periods of decline.
Bitcoin and other cryptocurrencies are subject to extra volatility and risk due to the uncertain future of this relatively new asset, both from a regulatory and an adoption perspective. Bitcoin's price fell due to multiple factors in 2021.
Due to these dramatic declines, the cryptocurrency remains far from regaining it's former $60,000 high reached by BTC in April 2021. Due to the volatility of Bitcoin, there is no doubt that there is a significant risk with the currency.
On the other hand, gold is known for having minimal volatility. Central banks, institutional investors, and other prominent market players often use gold to add stability to their portfolios. The gold price is unlikely to move much when it is moving.
Another significant difference is the storage of Gold and so-called digital Gold. Bitcoin is entirely digital; therefore, it cannot be tangible. As implied by the moniker, Bitcoin is entirely digital. Although gold may be digitally traded, it is a tangible commodity.
For storage, gold is kept in vaults, safe deposit boxes in banks, and personal safes for smaller amounts. Bitcoin, however, cannot be treated the same way.
In place of the public key, what is stored is a secret number that permits transfers of Bitcoin between parties. When purchasing Bitcoin, you must use a hardware or software wallet to protect your private key.
However, gold can also be risky because its physical nature makes it subject to theft if it is not correctly stored or hidden.
Cryptocurrency investors are concerned about Bitcoin's liquidity as a haven. Generally, cryptocurrencies are very liquid assets, but that might not always be the case. Liquidity varies from time to time based on the market.
Unlike Bitcoin, Gold doesn't lose value quickly (like Bitcoin can). So if you want an asset, you can trade in and out of it quickly, gold may be the right choice. In fluctuating markets, it may be easier to reallocate your portfolio to a liquid investment.
Even if you had several hundred Bitcoin, you might encounter difficulties liquidating them if you were trying to cash out in a hurry, as exchanges like Coinbase only allow for the liquidation of $50,000 daily.3 If the price of Bitcoin is higher than the daily limit, you will have to liquidate the coins in smaller amounts.
Bitcoin may be a more liquid asset if you do not own many of them. Furthermore, if the market swings wild and many investors start selling their Bitcoin, its price will drop precipitously.
Depending on your goals, risk tolerance, and strategy, you can answer this question. You can still make that decision by following this guide.
Cryptocurrency is a good investment for a young investor with a love of technology which is prepared to take risks to generate significant returns and if you think that blockchain technology will be a game-changer in the future. Perhaps you are a good candidate for investing in Bitcoin if:
Taking risks is in your nature. Significant risks are associated with Bitcoin, including increased volatility, irreversible loss or theft likelihood, and potential regulatory uncertainties. In the best-case scenario, however, accepting these risks can also deliver jaw-dropping rewards.
Investing in gold is a better choice if you're a cautious investor who wants to increase the stability of their portfolio's performance, if you're nearing retirement, or if you're not comfortable taking risks. If you meet the following criteria, gold might be the perfect investment for you:
You have a risk-averse attitude. Being risk-averse does not make you the wrong person. You might be unable to stomach taking a dramatic short-term loss and then hoping for the market to bounce back, so gold is a better investment.
The investor bases for bitcoin and gold are similar, and they are both used to diversify and store valuable assets, but they differ in many respects. There are pros and cons to each method of investment.
New-age investors realize crypto investments have potential, adding crypto to their portfolio to take advantage of the momentum trade, while conservative investors still invest in gold for stability.