Should You Invest in Bitcoin or Gold? Let’s Find Out

Should You Invest in Bitcoin or Gold? Let’s Find Out

eTurboNews Syndication:

South Africa, 4th August 2020 (Wiredrelease)Over the past few years, Bitcoin has been regarded by many to be the new “digital gold”. It has also been referred to as a safe haven asset to invest in, especially when the markets are under pressure or experiencing huge volatility, such as our present global crisis (COVID-19).

There are of course a number of reasons to critique Bitcoin as the new “digital gold”. In the last three months, Bitcoin has fallen less than major U.S equity indices and has not proven itself as the safe-haven asset, many have hailed it to be.

The cryptocurrency market fell over 10% in the last three months, along with the Dow, which secured its worst first-quarter performance ever, losing more than 23% of its value in the initial stages of 2020. The S&P 500 fell 20% in the first three months of the year, the worst first quarter recorded since 2008. It’s safe to say that markets globally are experiencing the crippling effect of the global pandemic at our hands. Except for gold.

Interestingly, gold rose by 4% in the first quarter of 2020. This comes as no surprise to economists who are of the opinion that this commodity is the actual “safe haven” asset of 2020 for a number of reasons.

Gold is a valuable material for consumer goods, especially jewellery. It is also regarded to be a scarce resource. Regardless of demand, the supply remains low. Gold cannot be manufactured at huge scales, issued as shares or distributed like a federal bank prints money. It is a natural resource that needs to be dug up and processed.

Traditionally, little to no correlation between gold and assets like cryptocurrencies, and stock indices such as the S&P 500, until bitcoin.

Vijay Ayyar, head of business development at cryptocurrency exchange Luno, told CNBC:

“While gold is much more established as a safe haven asset, bitcoin is arguably a second choice at this point given its total user base is smaller but growing”.

Vijay predicts that bitcoin won’t always lag in performance and in the next few months and years to come, Bitcoin will start to take a larger share away from gold. It is important to note that just like gold, bitcoin is limited too. It has been reported that the pseudonymous creator of bitcoin, Satoshi Nakamoto limited the total supply of bitcoin to 21 million tokens. Like gold, bitcoin is also not issued by a central bank or federal government.

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Comparing the Two Assets

  1. Legality

Gold is very hard to steal or corrupt. There is an established system for trading, weighing and tracking. Bitcoin is just as difficult to corrupt since it operates on a encrypted decentralized system, run by complex algorithms.

  1. Rarity

Both bitcoin and gold are considered to be rare resources. While we know that the founders of bitcoin have limited it to 21 million tokes, it is predicted that bitcoin will be out in circulation by the year 2140. It is also unknown to us when the world’s gold will be mined from the earth.

  1. Baseline value

Gold is a rare commodity, typically used for jewellery in today’s age. Historically gold was used in many application, from luxury items to specialized applications in dentistry, electronics and more. Bitcoin has incredible baseline value too. It has the potential to provide a means of banking for those without access to traditional banking infrastructure.

  1. Liquidity

Both bitcoin and gold have very liquid markets. Fiat money can be exchanged for them.

  1. Volatility

Perhaps the only major concern for investors interested in bitcoin is its volatility. In the last two years, the cryptocurrency market, specifically assets like bitcoin have experienced huge losses. Even though it has since recovered, the risks involved in investing are still quite high. Whereas, with an asset like gold, this volatility is scarce and this is why it is considered to be a safer asset.

In recent years, a number of alternative cryptocurrencies have launched, specifically focused on providing much more stability than bitcoin. Tether, for example, is one of these so-called stablecoins and is linked to the U.S dollar, similar to the way gold was prior to the 1970s. Investors who are still keen on investing in bitcoin should conduct further research. This can be done through reviews like the bitcoin trader review. Learning more about these markets is imperative to making smart investments.

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