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Is it better to invest in bitcoin or gold ?

 


In the past year or so, many analysts and others in the economic world have predicted a recession.

After many years of a bull market, investors worried about this possibility may suddenly start looking for a way to shift their investments to more stable safe havens.

The traditional move would be to hedge stock volatility with gold.

This method has proven effective in the past, but a newer alternative defies the old-school safe haven.

We are talking here about an asset that was launched in 2009, ushering in a new era of digital currencies.

As the leading cryptocurrency, Bitcoin has many characteristics of a currency, but with some unique features that could make it an escape haven from the decline of other assets.

Ultimately, though, it remains up to the individual investor to determine whether Bitcoin is a suitable safe space in times of market turmoil.

Below, we will compare gold and bitcoin as safe haven options.

gold:
There are many factors that make gold a strong safe asset.

As gold is valuable as a material for consumer goods such as jewelry and electronics, it is scarce.

Regardless of demand, supply remains disproportionately low.

Gold cannot be manufactured like a company that issues new shares, or the Fed prints money.

It must be dug out of the ground and processed.

Accordingly, gold is virtually uncorrelated with assets such as currencies and stock indices such as the S&P 500.

The precious metal was pegged to the dollar until 1971 when President Nixon severed the relationship between the US currency and gold as a rule.

Since then, those who don't want to ride the volatility of the stock market to its extreme have invested in gold.

The precious metal helps cushion the blow or even profit when there is a correction in the stock market, or a drop of at least 10%.

Gold usually performs well during corrections because even if it does not necessarily rise, an asset that stays flat while others pull back is very useful as a hedge.

Additionally, as more people flee stocks and invest in gold, the price rises accordingly.

Bitcoin explodes and shows itself:
Bitcoin is a blockchain-based cryptocurrency that shares some characteristics with its counterpart gold.

In fact, many have called Bitcoin “digital gold” in the past due to its tenuous relationship with all other assets – especially stocks.

Market participants may remember 2017 when the price of one bitcoin exceeded the price of one troy ounce of gold for the first time.

As of January 2020, Bitcoin is above $8,700, but how much is it worth?

Those who are fleeing from stocks are thinking of investing in cryptocurrency?

Like gold, there is a finite amount of bitcoin.

Satoshi Nakamoto, the creator of Bitcoin under the pseudonym, has limited the total supply to 21 million coins.

Bitcoin is also similar to gold in that it is not issued by a central bank or federal government.

As a decentralized cryptocurrency, bitcoin is created by the collective computing power of “miners,” individuals and groups of people who work to verify transactions on the bitcoin network, and are then rewarded for their time, computing power, and efforts with bitcoins.

To ensure that the market is not flooded, the bitcoin protocol stipulates that these rewards are halved periodically, ensuring that the final bitcoin will not be issued until around the year 2140.

Comparison between gold and bitcoin:
For hundreds of years, gold has dominated the safe-haven asset arena, while bitcoin was launched just over a decade ago, only gaining widespread recognition in the past few years.

Below, we will compare these two investment options head-on:

1. Transparency, Safety and Legality:
Gold system in place for trading, weighing and tracking.

It is very difficult to steal it, to rip off the fake gold, or to spoil the metal in some other way.

Bitcoin is also difficult to corrupt, thanks to its cryptographic and decentralized system and complex algorithms, but the infrastructure to ensure its safety is not yet in place.

The mt.gox debacle is a good example of why bitcoin traders should be careful.

In this turbulent event, a popular trading platform went out of business, losing $460 million worth of users' bitcoins.

After many years, the legal ramifications of the mt.gox trading platform have emerged.

Legally speaking, there are few consequences to such behavior, as Bitcoin is still difficult to track with any level of competence.

2. Rarity:
Both gold and bitcoin are rare resources.

The bitcoin mining reward halving mechanism ensures that all 21 million bitcoins will be in circulation by 2140.

While we know that only 21 million bitcoins exist, it is not known when all the gold in the world will be mined from the earth.

There is also speculation that gold can be extracted from asteroids, and there are also some companies that are looking to do so in the future.

3. Core value:
Gold has historically been used in many applications, from luxury items such as jewelry to specialized applications in dentistry, electronics…

As for the blockchain technology, Bitcoin itself has tremendous intrinsic value as well.

Billions of people around the world lack access to banking infrastructure and traditional means of financing such as credit.

With bitcoin, these individuals can send value around the world with virtually no fees.

Perhaps the true potential of Bitcoin as a means of banking has not been fully developed for those who do not have full access to traditional banks.

4. Liquidity:
Both gold and bitcoin have highly liquid markets where fiat money can be exchanged.

5. Volatility:
aA major concern for investors looking to bitcoin as a safe asset is its volatility.

One only needs to look at the history of Bitcoin prices in the past two years for a clue.

Around the beginning of 2018, the price of Bitcoin reached about $20,000 per coin.

About a year later, the price of one bitcoin was hovering around $4,000.

Since then, Bitcoin has recovered part of those losses, and has even doubled in value, reaching a new record this year.

Besides general volatility, Bitcoin has historically proven to be subject to market whims and news.

Especially with the cryptocurrency boom that swept a number of cryptocurrencies to record prices at the end of 2017, news from the cryptocurrency space may prompt investors to make quick decisions, causing the price of Bitcoin to rise or fall rapidly.

This volatility is not inherent in gold for the reasons mentioned above, which makes it a safer asset.

In recent years, a number of alternative cryptocurrencies have been launched that aim to provide more stability than Bitcoin.

Tether USDT, for example, is one of the so-called “stablecoins”.

Tether is linked to the US dollar in the same way that gold was before the 1970s.

Investors looking for less volatility than bitcoin may want to actually look elsewhere in the cryptocurrency space for safe havens.
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