Gold has undoubtedly grown in value over the last 20 years, but the year 2021 will tell a different narrative. Gold is down 9%, while other asset groups such as real estate, equities, and the currency are all up. Using gold as a hedge against stock market volatility is a standard line of action during a recession. This has shown to be a successful strategy in the past, but a fresh alternative is posing a threat to the old haven. Bitcoin, which debuted in 2009, ushered in a new era of digital currency. As the most popular cryptocurrency, Bitcoin has many of the characteristics of a coin, but it also has certain unique features that could make it a viable shelter.
Gold – The all-time safe asset
Gold is an excellent safe-haven asset due to some considerations. It’s rare and valuable as a material for consumer items like jewelry and electronics. Supply stays disproportionately low, regardless of demand. Gold has undoubtedly grown in value over the last 20 years, but the year 2021 will tell a different narrative. Gold is down 9%, while other asset groups such as real estate, equities, and the currency are all up.
Gold prices have varied in the short term, much like the stock market, but the value of the precious metal has remained relatively stable over time. Because we are in a moment of significant market volatility, it may be advisable to allocate a portion of your portfolio to gold. Inflation can cause gold prices to climb, making it a suitable inflation hedging investment. When prices rise, the value of fiat currencies falls, but gold’s value usually rises. India, one of the world’s major gold investors, has experienced a significant increase in its bitcoin business.
Bitcoin: The digital Gold
Bitcoin is a blockchain-based cryptocurrency having some characteristics in common with gold. Bitcoin has been dubbed “digital gold” by some in the past due to its shaky relationship with all other assets, particularly stocks. Another notable feature of Bitcoin is that it has a finite supply, meaning that there can never be more than 21 million Bitcoins in circulation at any given time. That means that if your gamble on Bitcoin pays off, it will only appreciate over time.
Bitcoin is a decentralized cryptocurrency created by the combined processing power of “miners,” individuals, and groups of people who work to verify transactions on the Bitcoin network and are rewarded with bitcoins in exchange for their time, computing power, and effort.
Transparency, safety, and legality: The established gold trade, weighing, and tracking system are flawless. It’s pretty difficult to steal it, pass it off as phony gold, or otherwise taint it. Bitcoin is similarly difficult to tamper with, thanks to its encrypted, decentralized system and complex algorithms, but the infrastructure necessary to assure its security has yet to be established.
Rarity: Gold and bitcoin are both scarce resources. Half of Bitcoin’s mining incentive ensures that by the year 2140, all 21 million Bitcoin will be in circulation. While we know there are only 21 million bitcoins in existence, no one knows when all of the world’s gold will be mined.
Liquidity: Gold and bitcoin both have very liquid marketplaces where fiat money can be exchanged.
Baseline Value: Gold has long been utilized in various applications, ranging from high-end jewelry to specific applications in dentistry, electronics, and other fields. Bitcoin, in addition to bringing in a new focus on blockchain technology, has significant intrinsic worth. Bitcoin’s actual potential as a form of banking for people who don’t have access to regular banks has yet to be realized.
Volatility: The volatility of bitcoin is a huge concern for investors looking for a haven asset. For proof, one only needs to look at bitcoin’s price history over the last two years. Aside from overall volatility, bitcoin has shown itself to be vulnerable to market whims and news in the past. Gold does not have this volatility for the reasons stated above, making it a potentially safer asset.