Where to invest gold or bitcoin?
image via cryptonewsz.com
Analysts and amateur economists alike enjoy sounding the alarm about a looming recession. The Great Recession of the 2000s was followed a decade later by the COVID-19 recession, one of the shortest in history. The recurrence of recessions has renewed investors’ interest in ensuring they lose as little as possible if a recession occurs.
As an investor, you would typically hold a portion of your portfolio in precious metals such as gold. This protects against the losses that stocks can suffer during a downturn in the economy. This has proven to be effective and continues to be so—but a new alternative is challenging this time-honored method of capital preservation. Bitcoin is proving to be an intriguing asset for investors because it has been around long enough to gain recognition and support—it is even exhibiting some trends.
Bitcoin decentralized technology debuted in 2009, ushering in a new era of finance and investing. Initially, these digital currencies were only appealing to a small group of enthusiasts. Early speculators discovered in 2010 that the Bitcoins they had previously purchased for fractions of a cent had increased to $0.09 per Bitcoin. Large-scale Bitcoin mining farms and pools grew in popularity, as did cryptocurrency exchanges.
When the Covid-19 pandemic began to disrupt economies around the world in 2020, speculators and investors noticed that Bitcoin’s value was not falling in tandem with stock prices. They began to pour capital into it, institutional investors continued to look for ways to create investment instruments and funds from it, and its price skyrocketed—the price of Bitcoin’s reached $61,000 by April 2021.
Gold has historically performed well during market corrections because it retains its value; its price holds somewhat steady, then tends to rise as investors shift away from stocks and toward gold if a recession is imminent. As a result, it can be used as a hedge—an investment that moves in the opposite direction of another—against market corrections or recessions.
During the Covid-19 pandemic, not all investors turned to Bitcoin; many opted for more traditional strategies, such as gold. As a result, the price of gold has risen from just under $1,300 in late 2019 to nearly $2,100 in mid-2020. Its price fell through 2021 as economies gradually recovered, but it remained higher than pre-pandemic recession levels.
For thousands of years, gold has dominated economies and markets as a means of exchange and wealth storage. Bitcoin was launched in 2009, but it did not gain widespread acceptance until several years later. Key differences can help you decide which one to include in your portfolio.
The key differences are:
Gold’s established trading, weighing, and tracking system is flawless. It is extremely difficult to steal or forge, and it is also highly regulated. Many countries prohibit crossing borders with gold unless you have regulatory permission.
When it comes to gold investing, you should generally only buy it from registered dealers and brokers; one caveat is that you should only buy physical gold if you can safely store it.
Because of its encrypted and decentralized system, Bitcoin is also difficult to steal and forge. With a few exceptions, it is generally legal to use across national borders. However, the regulatory infrastructure that could exist to ensure user safety is not yet in place; additionally, the anonymity of cryptocurrency makes it difficult to regulate.
Gold has historically been used in a variety of applications, including currency, luxury items, and specialized applications in dentistry, electronics, and other fields. Gold’s ability to maintain value when other asset values fall is due to this multi-functional utility.
Bitcoin’s utility is limited. It is currently only used as a speculative investment and a digital currency. However, there is a new financial technology called decentralized finance that uses cryptocurrency for financial transactions. Bitcoin can be used for lending, borrowing, and possibly more in this emerging technology. It has the potential to be involved in nearly as many applications as gold, but in the same vein, it has the potential to become both useless and valuable.
One major concern for investors considering Bitcoin as a safe haven is its liquidity. Although cryptocurrencies are generally very liquid assets, this is not always the case. It is sometimes more liquid than other assets, and sometimes it isn’t.
If you want an asset that you can quickly move in and out of without losing value (as Bitcoin can), gold may be a better option. It is a much more liquid asset, allowing you to reallocate your portfolio more quickly when the market fluctuates.\
For example, if you had several hundred Bitcoin, you might have difficulty liquidating them if you needed to get out of cryptocurrency quickly—exchanges such as Coinbase only allow for $50,000 in cryptocurrency liquidation per day.
If the price of Bitcoin exceeds the daily limit set by your exchange, you will only be able to withdraw in smaller increments. If you don’t have a large number of Bitcoins, it could be a much more liquid asset for you. Furthermore, if the market swings wildly and many investors begin selling their Bitcoin, the price will plummet dramatically.
Bitcoin has historically been influenced by the media, investor sentiment, regulatory actions, and hype. News from the digital currency world may cause investors to panic and make hasty decisions, sending Bitcoin’s price rapidly upward or downward. For the reasons stated above, gold does not have this volatility, making it a potentially safer asset.
Several alternative cryptocurrencies have been launched in recent years with the goal of providing greater stability than Bitcoin. These coins are referred to as “stablecoins” because their values are tied to fiat currency or another stable asset. Tether, for example, is linked to the value of the US dollar.
The question of whether Bitcoin is a better investment than gold comes down to your investment objectives, whether you enjoy speculating, your risk tolerance, and how much capital you can afford to lose if the market turns. A financial advisor can assist you in setting investment goals and determining whether Bitcoin is a good investment for you.
How do the exchange markets fare?
Bitcoin Exchanges are Still in Transition, but Gold Exchanges Have a Strong Global Network of Exchanges. A Bitcoin exchange called MT.GOX crashed, as was already mentioned. A lot of certainties about the investment instruments those exchanges are trading are typically produced when exchanges crash.
Thankfully, gold doesn’t have a similar issue with exchanges. It has so many exchanges, in fact, that Bitcoin can’t even compete. Moreover, due to the clarity of the pricing signals, the global network of exchanges for gold is fairly transparent. Bitcoin, on the other hand, is less clear. Only a small number of exchanges differ from one another. If enough of these exchanges have problems in the future, it might undermine trust and lower the value of bitcoin.
Is Bitcoin Rarer Than Gold?
Gold is one of the rare metals. Bitcoin is rare compared to other cryptocurrencies, and gold is rare compared to other metals. They are both rare in their respective categories.
Is Bitcoin similar to Gold?
Bitcoin is similar to gold in that it has become an alternate investment for some investors. It has the potential for many uses and can be a worthwhile investment if used in the right strategy.
Is Bitcoin a Better Investment Than Gold?
Which is better depends upon your risk tolerance, investing strategy, how much capital you have to use, and how much you can tolerate losing. Bitcoin is much more volatile than gold, making it a riskier investment than gold.
- Gold has historically been a valuable asset that has been used as a hedge against market downturns.
- Cryptocurrency speculators are using bitcoin to store value and protect against corrections and recessions despite the fact that it is still a young and unproven investment.
- Depending on your risk appetite, investment objectives, strategy, and the amount of capital you can afford to lose, one investment may be preferable to another.
Gold or Bitcoin? Beware the ‘malignant tumor,’ says ‘Black Swan’ guru Nassim Nicholas Taleb
Is gold a better investment than bitcoin? There are many different points of view, with billionaire Mark Cuban supporting Bitcoin and CEO of Euro Pacific Capital Peter Schiff opposing it.
This week, Nassim Nicholas Taleb, one of the few people to have predicted the 2007–2008 financial crisis and the author of the 2010 New York Times bestseller The Black Swan, offered his opinion on the topic in an interview with the French weekly L’Express.
It’s safe to say that Bitcoin, which has lost over 60% of its value since the beginning of 2022, does not impress him.
Technology changes over time.
He cited the fact that “we are unsure of the interests, mentalities, and preferences of future generations” as a drawback of Bitcoin. While technology changes rapidly, gold, at least physically, endures. Bitcoin would inevitably crash after being neglected for a while.
Furthermore, according to him, “it cannot be expected that an entry on a register that requires active maintenance by interested and motivated people—this is how Bitcoin works—will retain its physical properties, a requirement for monetary value, for any amount of time.” When asked where the “craze for cryptocurrencies” came from, he cited the 15 years of historically low-interest rates.
He claimed that cutting interest rates “creates asset bubbles without necessarily helping the economy.” “Since capital is no longer a cost, risk-free returns on investment have dropped to levels that are even negative, encouraging people to engage in speculation. We no longer understand the meaning of a long-term investment. The era of real finance is over.
He claimed that “malignant tumors like Bitcoin” were one of the outcomes.
Taleb is not the only one to draw attention to the effects of the “everything bubble,” which was brought about by the Fed and other central banks’ years of loose monetary policies in the wake of the Great Financial Crisis. As Fortune noted this week, the era of easy money was rife with bulls who thought the good times would never end, from cryptocurrency experts to hedge fund managers to economists and investment banks.
It’s interesting to note that Taleb initially backed Bitcoin. He admitted to L’Express that he had been critical of then-Fed chairman Ben Bernanke at the time. Before the 2008 financial crisis, he claimed, Bernanke failed to recognize the structural risks in the system and overreacted as a result: “Instead of addressing debt and reducing hidden risks, he covered them with a monetary policy that was only intended to be temporary. I was wrong to believe that Bitcoin would act as a buffer against this monetary policy’s distortions.
“Manipulators and con artists”
The “crypto universe attracts manipulators and scammers,” warned Taleb. There is undoubtedly company for him.”We have to kind of come to terms as an industry with the fact that, in my opinion, our industry is attracting a disproportionate share of fraudsters and scammers,” said Coinbase CEO Brian Armstrong at the a16z crypto Founder Summit in late November. It’s really unfortunate that way. That does not imply that it is typical of the entire sector.
This week, Taleb tweeted that while he has faced trolling and defamation for his criticism of the cryptocurrency industry, these actions have been outweighed by the “many thank you messages for protecting young people from Bitcoin.”
He shared a tweet from a user who said he was on the verge of purchasing Bitcoin but decided instead to adopt Taleb’s position, writing, “I get why crypto is crap in theory. After that, it failed in practice. My father’s hard-earned money was saved by NNT.
Many Bitcoin bulls are still optimistic in the interim. Bitcoin is currently just under $17,000, but Ark Invest CEO Cathie Wood recently reaffirmed her prediction that it will reach $1 million by 2030. She added that Bankman-Fried disliked “transparent and decentralized” Bitcoin “because he couldn’t control it” and claimed that “opaque centralized players” were to blame for the FTX debacle.
Cuban stated last month on Bill Maher’s Club Random podcast that he wanted bitcoin prices to drop even further so he could purchase more.