The investing landscape has transformed a lot in recent years. The most popular traditional investments, stocks, and bonds are now joined by two other alternatives - gold and Bitcoin.
The stock and bond market has always been volatile. After years of the bull market persisting, recent recession concerns are leading investors to start looking for more stable and safer havens. Gold is the primary hedge against currency devaluation and volatility. It performs well in times of inflation since miners can’t create more gold.
However, a newer alternative is now challenging the old-school safe haven. According to trade pundits, gold is losing its luster to the new financial aid - Bitcoin, which is also surprisingly known as digital gold.
The demand for Gold fell drastically in the year 2020. They are down about 9% this year and are trading nearly 15% below the all-time high of more than $2,000 set last year. Meanwhile, bitcoin is at an astonishing soar rate. It has rapidly ascended to over $50,000 per coin and is even backed by massive investments from big companies such as Morgan Stanley and MicroStrategy. If we are to believe trade analysts, bitcoin is going to outperform itself in a few years and will have enormous price rises. Large global financial players are also touting the same.
As bitcoin is continuing its meteoric rise, investors are assessing the comparison between cryptocurrency and gold. As a result, there is a lively debate going on about which one is a better investment lately - bitcoin or gold.
Bitcoin vs Gold
Gold has always been a sound investment to preserve your long-term wealth. It is a valuable asset for consumer goods and is scarce. Unlike fiat currencies, it has a proven track record of holding its value for thousands of years in different market conditions.
On the other hand, Bitcoin is a decade-old digital currency that is turning out to be quite an attractive asset for investors. Gold is best even in times of inflation but when it comes to high-interest rates, bitcoin bags the medal. It launched at a unit worth $0.08 in 2008. In 2021, it touched an all-time high of $60,000 per unit, gaining widespread recognition in a few years. It is registered on a public blockchain and is decentralized in nature and hence, dismisses the conflict of hacking or smuggling.
One of the biggest reasons why traditional investors are hesitating to invest in bitcoin is its high volatility. They tend to look for a serious hedge against inflation, and Bitcoin fails to provide it. Gold, on the other hand, has a history of being the safe-haven asset of choice. Even today, the market capitalization of the global gold market is $11 trillion, whereas cryptocurrencies, as a group, $2 trillion.
However, Bitcoin is taking baby steps to develop and become a safe hedge against inflation. For instance, Paul Tudor Jones, a famous hedge-fund trader, bought Bitcoin as an inflation hedge in his $22 billion Tudor BVI Fund in May.
Both gold and bitcoin are alternative types of money. The difference is that the former is the money of the past while the latter is the money of the future. They also facilitate international transactions across borders. While gold has one-fifth the volatility of bitcoin, bitcoin is a 100x improvement over gold as a store of value.
There are overlapping reasons to invest in both gold and bitcoin. Hence, you cannot prioritize one over the other.
Both bitcoin and gold have passionate investor bases. Some institutions are of an opinion that gold is irreplaceable while the other millionaires consider Bitcoin as the perfect use case in the modern economy.
However, the debate about investment in bitcoin or gold need not be a binary decision as holding a mix of different assets results in healthy diversification and hence, improve the performance of your overall portfolio. Owning gold and bitcoin is one of the best ways to invest since the prices of both the assets are largely non-correlated with not just one another but all other assets too. Their prices do not tend to move in the same direction, given any downturn in the broad market. Hence, the total value of your portfolio is less likely to reduce significantly.
We recommend you keep your portfolio balanced and invest in both - gold, the safest haven, and bitcoin, the future tech of money. It is, any day better than having a highly concentrated portfolio and placing all your eggs in one basket. In times when consumer prices are rising, both the assets could result in becoming investment winners.
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