The year 2020 and the coronavirus pandemic have caused several economists and those in the field of finance to anticipate an economic downturn. After receiving positive returns on investments for the past several years, investors worried about this prospect could suddenly start searching for a way to move their assets to more secure safe-havens.
The conventional strategy would be to counter the effects of stock volatility by purchasing gold. This approach has the advantage of being tried and tested in the past, but the modern solution is presenting an alternative store of value for investors. Introduced in 2009, Bitcoin initiated a modern age of digital currency. As the predominant cryptocurrency, bitcoin has a number of financial characteristics, but with certain particular qualities that would make it an effective haven. At the end of the day, however, it remains for the individual user to decide if bitcoin is an acceptable safe place in a moment of financial turmoil.
Below, we’re going to see which of the two is a better financial investment.
Gold vs Bitcoin: Which is Better?
There are many reasons that make gold such a reliable investment. It is important as a commodity for consumer products, such as cosmetics and appliances, and it is hard to obtain. No matter what the demand is, the supply of gold is always inelastic. Gold cannot be produced in the same way that a corporation issues additional shares or a state bank prints paper money. It needs to be extracted and refined before it can be used as a financial asset.
As a result, gold has virtually no significant correlation with commodities such as currency and market indices. Gold used to be pegged to the U.S. dollar before 1971 when the bonds were dissolved between the two assets by the U.S. government. Ever since investors that do not want to navigate equity market fluctuations to their fullest degree have decided to invest in gold. Precious metals such as gold tend to ease the impact anytime there is an alteration in the financial markets or even a minor downturn.
Gold typically does well through crises, and even though it doesn’t actually increase in value, a commodity that stays stable when others drop is very effective as a buffer. Plus, as more investors leave stocks and trade in gold, rates increase correspondingly.
Bitcoin is a blockchain-powered cryptocurrency that has certain attributes in common with gold. In reality, many have already called bitcoin digital gold before because of its weak correlation with stocks or other common financial instruments.
Market observers may recall in 2017 that the value of one bitcoin approached that of a singular troy ounce of gold. One thing gold and bitcoin have in common is that they are both finite. Satoshi Nakamoto, the anonymous founder of bitcoin, has capped the overall supply of bitcoin to 21 million. Another thing Bitcoin has in common with gold is that it is not distributed by the financial institution or ant state government. As a decentralized digital cryptocurrency bitcoin is created by the pooled computational power of miners who operate alone or in groups and work to validate payments that take place on the Bitcoin network and are then compensated for their effort and computer processing resources with Bitcoin. To guarantee that the economy is not overwhelmed, the Bitcoin framework stipulates that this reward is reduced by 50 percent periodically which is known as Halving, meaning that the last bitcoin would not be distributed before about 2140.
Which is the Better Store of Value between Gold and Bitcoin
Gold has occupied the safe-haven investment marketplace for millennia, although bitcoin was introduced just over a decade earlier and has only gained mainstream popularity over the last few years.
Gold’s proven exchange, measurement, and controlling infrastructure is well-developed. It’s really difficult to extract it, to run away with counterfeit gold, or even to damage the material. Bitcoin is also tough to manipulate due to its authenticated, decentralized framework and complex algorithms, but the infrastructure to guarantee its security is not yet in place. Bitcoin and gold are both scarce resources.
Gold has traditionally been utilized in many industries, from luxury goods such as earrings to highly specialized uses in dental care, electronic components and much more. In addition to bringing in a new spotlight on blockchain technology, bitcoin can also be considered a valuable asset on its own. A huge chunk of the world’s population may not have links to financial services and mainstream financing options such as credit or debit cards. With Bitcoin, these individuals may transfer money around the world for virtually no cost. Bitcoin’s real strength as a way of doing business for those lacking access to banking institutions could have yet to be properly explored.
One big problem for traders looking at bitcoin as a store of value currency is its uncertainty. One can just look at Bitcoin’s price chart for proof in the last two years. Other than the immense uncertainty, bitcoin has traditionally proved to be vulnerable and reactive to investor volatility and news media. Especially when the cryptocurrency bubble pushed a range of cryptocurrencies to unprecedented prices in 2017, reports from the crypto community could cause investors to make swift judgments by pushing the bitcoin price up or down rapidly. This uncertainty is not present in gold for the reasons described above, which could render it a safer commodity.
Pros and Cons
Gold has consistently proven to be a safe bet in the long run. It has seen a growth in value over the years, and the value of gold also increases while the economy is in crisis. Since it has been used as a type of currency backup for several years, it is also a secure investment in this way.
Gold has long been used as a commodity across the globe and over millennia. Its elegance, usefulness, and rarity have given it the perfect foundation for exchanging and associating value. Since it has been used for about as long as cultures have been present, it is time-tested and proven its intrinsic merit. If you put money in gold, you can be confident that one day it’s not going to lose its value.
If you have your gold deposited in IRA precious metals, it will be placed in a separate, protected vault under the control of a custodian who will monitor your account. These investments are also protected up to a certain limit, just like a conventional checking account, so you can rest assured that your asset is secure.
Not a Mean of Exchange
In the case of an economic downturn in which the conventional fiat money is no longer sustainable, gold can be used as a medium of exchange. Gold, though, is not presently a viable way of purchasing something. Although legally certain gold coins are considered as money, this is usually a huge discrepancy between the value of the coin and the material it’s made of.
The problem with investing in gold is that the only option you have is to store it. Whether you use a financial institution, or install a vault in your home, you need to find a secure place to store your asset.
Easy to Buy
Since Bitcoin is fully digital, it can be quickly exchanged with another consumer and traded for its USD value. The best way to buy a Bitcoin is to use a reliable exchange platform such as NeuronEx.
A Mean of Exchange
As long as you have a mobile wallet software that helps you to pay for bitcoin, you can use it as a payment system in any shop that supports bitcoin. For example, some of the companies that have supported Bitcoin payments in the past include Tesla and Starbucks.
Room for Growth
Relatively speaking, bitcoin is new, only it’s been around for ten years. As a result, it is deemed as a future investment and has the capability to raise its value tremendously. If you want a big payoff in the long run, now is the time to invest in Bitcoin. A lot of people already have decided to withdraw their investments because of the drops, but in the long term, the price of bitcoin is expected to increase.
Because bitcoin is a developing asset, it is also highly unpredictable, which means that it is vulnerable to severe price fluctuations over a short period of time. Every risky investment has the possibility to generate a substantial profit, but it also has the propensity to crash almost as severely.
Although bitcoin is fully digital, you do need a way to store it, whether it’s on an online site, a digital wallet, or a traditional hard drive. Each storage solution has advantages and disadvantages. Web-based wallets can be compromised and the bitcoin can be withdrawn. Physical wallets, such as thumb drives or portable hard drives, may also get lost or be stolen.
Bitcoin is the most popular currency right now, but that could change in the future. If another cryptocurrency is seen as a better option, Bitcoin could lose its value quickly.
Now that you know more about gold and Bitcoin, it’s time to decide which one is the right investment for you. There is no right answer that applies to everyone, and the real solution depends on your priorities. Bitcoin is a worthwhile choice for short-term potential earnings, but you still have the possibility to lose a lot of capital. Gold, though, is a safe commodity that is almost sure to make a return on your investment in the long run. Good luck!