o3 BLOG | Investing
Why Gold Remains a Better Investment Than Bitcoin and Other Cryptocurrencies
Investors are feeling the rising inflationary pressure, and concerns surrounding diminishing funds are growing. Amidst financial turmoil and uncertain times, gold has acted as a reliable hedge against inflation, and many seasoned investors refer to it as insurance. Gold maintains purchasing power over the long term, but how does it stack up against cryptocurrencies like bitcoin and ethereum?
As retail and institutional investors shift their focus on crypto, you might be wondering if investing in digital assets is a good idea, how much you should include in your portfolio, or whether you should stick to traditional investments like gold. A few things you need to consider about both gold and crypto are:
- Gold is a safe-haven asset
- Gold maintains purchasing power over the long term
- Cryptocurrency is still new and highly volatile
- Should you invest in gold or crypto?
Gold, the Safe-Haven Asset
Gold has been a prized and coveted commodity for centuries. Gold offers a source of security and it holds its value over the long term. Bitcoin did not exist during the Great Recession or any other significant economic crisis. Gold, however, is a well-known asset that investors include in any well-balanced financial plan. Keep in mind that gold is held by central banks, big government institutions and pension funds. By contrast, global policymakers are still exploring the security and feasibility of blockchain technology and cryptocurrency.
Many investors refer to gold as insurance for their investments as gold maintains and even increases its value when other markets are falling. The use of gold as formal currency dates back over 5,000 years, and there is still strong demand for the precious yellow metal today. With such a long history on its side, it’s safe to say that gold isn’t going anywhere.
While gold can sometimes experience volatility over short periods, its value remains stable over the long term. Gold prices benefit from inflation, making it an effective hedge. Further, when fiat currencies fall, investors turn to gold to maintain purchasing power.
Physical gold lacks something other investment products have, which is the ability to pay interest or dividends. When you invest in physical gold, you will not receive passive recurring income like you typically would with investments such as real estate (rental income) or stocks (dividends). However, gold’s primary purpose has never been to generate revenue — it’s to protect wealth during unprecedented economic and political times.
As a portfolio diversifier and inflation hedge that maintains its purchasing power, people who invest in gold can still benefit from returns if they choose to sell in the future.
There are many ways to invest in gold — you can purchase physical gold bullion or gold coins, which have a higher barrier of entry, or you can opt for gold stocks or ETFs, which are more accessible to the average consumer.
The 2021 Cryptocurrency Market
If you’ve paid attention to any investor news over the past year, you might be familiar with the volatility of cryptocurrency. In May of this year, the Cryptocurrency Collapse of 2021 occurred when bitcoin plummeted to ~ $USD 38,000, a decline of 41% in just five weeks. Other than Elon Musk’s cryptic and often cheeky Tweets, there aren’t highly reliable factors or indicators that can predetermine the direction of bitcoin.
Despite gold’s recent clawback, gold is still the superior investment product, given its performance against inflation and protective qualities compared to crypto. Thanks to decades worth of data, financial professionals better understand gold, allowing them to generate accurate forecasts for the precious metal. Having at least a 5% – 10% direct investment in gold and gold mining stocks in a diversified, multi-asset portfolio can help offset losses on bonds due to rising inflation — physical gold investments also play a protective role in offsetting losses on equities as well.
Bitcoin and cryptocurrency will remain a contested alternative asset, mainly because of its erratic price behaviour and government hesitancy surrounding its security. However, Bitcoin and Ethereum’s surprising comeback earlier in September has given some investors hope, supporting the argument that it is a viable alternative to gold as a hedge against inflation. At the time this article was written (late September), the crypto market yo-yoed significantly, leaving many of us on the edge of our seats.
Gold vs Bitcoin — The Bottom Line:
While it might be worth exploring, the risks to bitcoin and other cryptocurrencies greatly outweigh the rewards, and investors should heed caution when executing digital asset allocation strategies. Another thing to keep on your radar, regulatory protocol surrounding crypto is becoming more stringent, with the US Treasury recently announcing that any crypto transfer exceeding $USD 10,000 must be reposted to the IRS. This regulatory blow could very well be the straw that breaks the camel’s back as far as crypto goes, as more institutional investors are dropping bitcoin and returning to their safe place — gold.
To learn more about diversifying your portfolio with gold, the ultimate safe haven asset, contact O3 Mining Investor Relations today.
To learn how O3 Mining can add long-term value to your portfolio, contact us today.
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