At the height of the recent pandemic, I was asked to write an article on the value of gold as a safe investment in a financial crisis. The upshot of the article was that gold, and precious metals in general, are an excellent hedge bet when markets are uncertain.
But there is another option that is rapidly gaining traction – electronic currencies. Cryptocurrencies were once seen as an outsider. But that perception is weaning, and although still seen as a volatile “commodity”, more experts are coming round to the fact that these currencies could be the future.
Deutsche Bank recently produced a report predicting that within ten years cryptocurrency users will grow 400% to 200 million and China recently released a state-controlled digital currency. These facts alone point to the economy becoming increasingly entangled with cryptocurrencies.
But the volatility of cryptocurrencies still puts many investors off. Recent events have shown that one tweet from Elon Musk can spook the whole crypto market.
owever, there is no doubt that cryptocurrencies have progressed far enough that it is now worth asking the question.
Precious Metals v Cryptocurrency, which is the safer hedge bet?
Precious Metals vS Cryptocurrencies
To consider this question let’s pit two of the big names against each other – Gold v Bitcoin. Despite one being a physical substance and the other being lines of computer code, there are some similarities between the two.
The most obvious one is that both are mined, although the definition of mining is loosely applied in the case of Bitcoin, the process is similar. Gold is a rare precious metal that is mined from the ground, Bitcoin is a rare token, that is mined using raw computing power.
Below, I take a brief look at these two commodities.
Gold is a traditional safe-haven investment. It has value as a material that is sought after for goods such as jewellery and electrical components and has a scarcity that ensures there is always demand. Gold isn’t something that can be manufactured as demand increases, nor can governments print more of it as they can with money.
This gives it a separation from stock markets and currencies and their associated volatilities.
Bitcoin has been called “digital gold”, referring to the similar weak relationship both it and gold have with traditional markets. It is a blockchain currency that is limited to 21 million tokens, giving it a scarcity that market values reflect.
Launched in 2009, it really came to the notice of serious market players in 2017, when the price of a Bitcoin token surpassed that of a troy ounce of gold.
There is no doubt that cryptocurrencies are here for the long run, and for many investors, they are now considered a safe hedge. However, gold is so entwined into the global financial system that it too is here for the long run, and will continue to attract hedge investments for centuries to come.
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