Many economists and others have anticipated a recession in the last year or so. Investors who are concerned about this prospect might abruptly begin seeking a means to relocate their investment into more secure safe havens after several years of a bull market.
The usual strategy would be to invest in gold as hedging against the stock market volatility. This has shown to be a successful strategy in the past period, but a fresh alternative is posing a threat to the old safe haven. Bitcoin, which debuted in 2009, ushered into a new era of digital currency. Bitcoin, as the most popular cryptocurrency, has many of the characteristics of a currency, but it also has certain unique characteristics that can make it a viable shelter. However, it is ultimately up to an individual investor to decide if bitcoin is a good safe haven in times of market turmoil.
We’ll compare gold with bitcoin as a safe-haven asset below.
Gold vs Bitcoin. What is the Comparison?
Gold has dominated over the safe-haven asset’s market for hundreds of years, but bitcoin was created a bit over a decade back and it has only recently gained popular acceptance. We’ll evaluate these two investing alternatives side by side in the table below:
Transparency, Legality and Safety
Gold has a well-developed weighing, trading, and tracking system, as well as an online trading order and delivery system. This can be one of many reasons to invest in gold. It’s quite difficult to steal, pass it off as phoney gold, or otherwise taint it. If you invest in Bitcoin it is similarly difficult to tamper with, thanks to the encrypted, decentralised system and complex algorithms. However, 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. There is also conjecture that gold can be extracted from asteroids, and some firms are considering doing so in the future.
Baseline Value or Intrinsic Value
Gold has long been utilised in a variety of applications, ranging from high-end jewellery to specific applications in dentistry, electronics, and other fields. This will continue to be a source of demand in the near future. When you invest in Bitcoin, on the other hand, it has raised awareness of blockchain technology and demonstrated its utility for uses other than investing.
If you invest in Bitcoin, in addition to bringing in a new focus on blockchain technology, it has significant intrinsic worth. Throughout the world, there are billions of people who lack access to banking infrastructure and traditional financial instruments such as credit. These people can transmit money throughout the world for almost no cost using bitcoin. Other cryptocurrencies may take advantage of this chance in the future, but Bitcoin is now the leading runner. Bitcoin’s actual potential as a form of banking for people who don’t have access to regular banks has yet to be realized.
Liquidity
When you invest in gold and bitcoin, due to a very liquid market, flat money may be exchanged for them. The gold market, in comparison to bitcoin, has a lot of depth and liquidity. An estimated $3.7 trillion worth of physical gold is held by investors and central banks. That’s approximately seven times the total market cap of all bitcoins ever mined.
Volatility
Volatility is another factor to consider. Traders often enjoy it, but investors dislike it. Is Bitcoin mature enough to be considered a safe haven asset? The volatility of bitcoin is a huge concern for investors looking for a safe haven asset. Even though you invest in Bitcoin it can still be a volatile instrument, even though it is at an all-time high. For proof, one only needs to look at bitcoin’s price history over the last two years. Over the beginning of 2018, bitcoin hit its all-time high, with a price of around $20,000 per bitcoin. Then a year later, its price was hovering at $4,000, representing an 80% decline in a year. It has already recouped some of those losses, but it is still nowhere near its all-time high. Gold, on the other hand, has a lower level of volatility, yet it was still quite unpredictable in 2020.
Aside from overall volatility, bitcoin has shown itself to be vulnerable to market whims and news in the past. News from the cryptocurrency realm could lead investors to make hasty judgments, propelling the price of bitcoin upward or lower swiftly, especially since the boom in cryptocurrency swept up many digital currencies into their record-high levels at the end of 2017. For the reasons stated above, gold does not have this volatility, making it a potentially safer asset.
A number of alternative cryptocurrencies have emerged in recent years with the goal of providing greater stability than bitcoin. One of these so-called “stable coins,” for example, is Tether. Tether is connected to the US dollar in the same way that gold was linked to the US currency prior to the 1970s. Investors seeking a less volatile alternative to bitcoin may want to explore safe havens elsewhere in the digital currency market.
Why Invest in Gold?
Gold has existed for millennia. People value gold because it has been proven to be a reliable source of security over time. Financial professionals are usually the ones who invest in gold. Gold is always held by central banks, big governmental institutions, pension funds, and astute family offices. Some investors regard gold as a form of financial insurance. People frequently invest in gold when there is concern about a country’s currency or an economic collapse since it benefits in times of crisis.
Gold is an excellent safe-haven asset due to a number of considerations. It’s rare and precious as a resource for consumer items like jewellery and electronics. Supply stays disproportionately low, regardless of the demand. The gold can’t be manufactured in the same way that a federal bank can print money or a corporation can issue new shares. It must be dug up and processed from the ground.
During corrections, gold normally performs well because, even if it does not always rise, an asset that remains stable while others fall is fairly beneficial as a hedge. Furthermore, as more people abandon stocks to invest in gold, the price climbs in lockstep.
How to Invest in Bitcoin?
Bitcoin is really 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. Market players may recall that in 2017, the rate of a bitcoin topped the rate of a troy ounce of gold for the first time.
Bitcoin’s price has risen to almost $8,700 as of January 2020, but why is it so valuable? Should individuals who are fleeing the stock market try investing in cryptocurrencies?
You can invest in Bitcoin as it has a finite supply, much like gold. Bitcoin, like gold, is not issued by a central bank or the federal government. Bitcoin is a decentralized cryptocurrency that is 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. The Bitcoin protocol requires that these incentives are periodically halved to prevent the market from becoming inundated, ensuring that the final bitcoin will not be released until around the year 2140.
Gold vs Bitcoin: Bottom Line
While you invest in Bitcoin to gain higher returns, its volatility makes it more difficult to consistently discover effective entry positions. As a result, rather than investing in it, it is a suitable asset to trade. Even so, one should use a complete set of risk management measures when trading Bitcoin.
Will Bitcoin continue to eat into gold’s proportion of global investments and rise? Time will tell, but we should expect greater volatility in Bitcoin in the next months, as well as a lot of profit-takings as new participants enter the market.
Read More: Is Now a Good Time to Invest in Gold? Here’s Everything You Need to Know
FAQ
Is gold worth more than Bitcoin?
It’s difficult to make apples-to-apples value comparisons here. You might say Bitcoin is “worth more” if an ounce of gold costs $1,700 and one BTC costs $50,000, but those conventional units are arbitrary.
Total market capitalization, on the other hand, paints a different image. Market capitalization is a term used to describe the total value of all of a company’s stocks. In this sense, it refers to the total monetary value of all gold or Bitcoin in the world. The worldwide gold market is valued at roughly $11 trillion by this calculation. At the time of writing, the total market capitalization of all cryptocurrencies is still less than $2 trillion.
Can Bitcoin replace gold?
This is a popular assertion made by both Bitcoin supporters and detractors. The idea that Bitcoin is “gold 2.0” or a “digital counterpart of gold” is a huge exaggeration.
Bitcoin and gold share some characteristics, such as the fact that they are both considered alternative forms of money rather than fiat currencies. However, the substitution of Bitcoin for gold implies that BTC will be a future monetary standard. This notion is hotly debated, and it has little to do with what gold is used for now.
The primary flaw in this line of reasoning is that Bitcoin’s rise does not imply gold’s demise and vice versa. Both assets have the potential to thrive together.
Is Bitcoin "digital gold"?
Bitcoin is the gold standard among cryptocurrencies and digital tokens, and it’s legitimate to conceive of it as such. However, the term “digital gold” is most likely another attempt to promote Bitcoin as “gold 2.0.”
Gold is no longer useful as a medium of exchange, but it continues to serve as a store of value. While Bitcoin has some of these traits, its price is far too unpredictable to be termed a store of value (SOV), and it is utilized as a currency in a way that gold isn’t.
How does Bitcoin work?
From the standpoint of the user, Bitcoin is just a computer program or mobile app which provides a person with a personal Bitcoin wallet to allow and help the user in sending and receiving bitcoins. For the most part, this is the way that Bitcoin works.
What is Bitcoin?
Bitcoin may be described as a consensus network which allows for the creation of a new system of payment and a purely digital currency. It is the first decentralized peer-to-peer payment network, with no central authority or middlemen, that is driven by its users. Bitcoin is essentially currency for the Internet from the user’s perspective. Bitcoin is also the most well-known triple entry bookkeeping system on the planet.
Is gold or Bitcoin a better investment?
Bitcoin is a better investment for short-term gains, but it also has the risk of losing a lot of money. Gold, on the other hand, is a reliable investment that almost always pays off in the long run.
