Investors worldwide are in search of assets to diversify their portfolios and hedge their investments. Fortunately, they can choose from a wide range of investment types (traditional and digital). In the last 10 years, the emergence of digital assets like cryptocurrencies has encouraged investors to add innovative assets to their portfolios. Of all the digital currencies available on the market, Bitcoin has always stood apart because it’s the first cryptocurrency ever introduced and has often been compared to gold due to its scarcity.
And while investors have traditionally looked at the stock market as a primary means to diversify their portfolios, many other choices are worthwhile exploring. The economy is changing fast, traditional currencies have become fragile in the present context, and the global economy is suffering. It’s more apparent than ever that portfolio diversity is paramount for profit-making. And while Bitcoin is a popular investment due to its volatility, which makes it possible to gain life-changing profits, seasoned investors also don’t dismiss the option of purchasing gold because it has an excellent track record and a long history in the global economy.
But should we put the two assets in the same category? Let’s find out more about the correlation between gold and digital gold.
Which asset will win in the fight between Gold and Bitcoin?
No one can deny gold’s longevity in the sector. Investors have always found it appealing as an inflation hedge because it provides one of the safest investment choices. Bitcoin is a younger asset, and due to its increased volatility, it has always been associated with huge risks. However, the same fluctuations could trigger higher returns on investment than most assets.
Cryptocurrencies have been gaining growing interest among investors because they provide short-term opportunities. Some would even say that the rise of Bitcoin could challenge gold to become the main choice as a hedge against inflation. Bitcoin, together with other digital currencies, have been marching the financial system for a while in an attempt to replace traditional assets.
Why do investors consider Bitcoin a worthy asset to add to their portfolios?
The reasons behind Bitcoin’s popularity are clear, it was created with the help of revolutionary technology, and its adoption rate has increased steadily since its launch on the market, thus de-risking it. Seasoned investors find it hard to ignore the returns the digital currency can bring in a bull market. Many still regret not purchasing the asset when it first started making headlines. However, the current bear market offers the ideal opportunity for adding Bitcoin to one’s portfolio because it’s still sold at an accessible price. A speculative strategy could make investors rich, but it’s crucial to act cautiously because volatility is volatility.
Let’s remember how it all started for Bitcoin
The cryptocurrency was launched in 2009 by an anonymous entity called Satoshi Nakamoto, who announced that they had created a new digital asset system to replace traditional money. Here are the primary features the digital currency is supposed to have.
– Bitcoin is a decentralized asset. There is no central authority to control Bitcoin or other digital currency. All blockchain-based currencies rely on a vast network of users, miners, and investors that collectively control the value and supply of the assets.
– Bitcoin is based on blockchain technology. Because Bitcoin is based on blockchain, all transactions are recorded on the distributed ledger, which makes them safer than traditional ones. The blockchain allows two crypto users to agree on the terms of the transaction and records all the information related to it in a chain of chronological data points. The blockchain is made of individual blocks of data that keep track of all activities. No one can interfere with the transactions or alter them. However, blockchain is open-source, so all users can investigate the code. Therefore, Bitcoin transactions aren’t anonymous, even if it’s quite difficult to track a specific transaction to an individual.
– Bitcoin enables peer-to-peer transactions. Bank transactions require a third party to oversee them. But the blockchain removes the need for one because it enables peer-to-peer transactions.
– Bitcoin compensates miners. Bitcoin was created to encourage miners to solve complex mathematical problems, to validate new blocks and gain compensation. Anyone with access to the necessary infrastructure can mine Bitcoin, even if miners prefer to join mining pools to maximize computing power.
Comparing Gold and Bitcoin
Investors have always turned to gold due to its scarcity and increased value. It has always acted as a hedge against deflation and inflation and played an active role in how interest rates evolved. Gold is rarer than any other precious metal, so its value increases as its deposits drop. A precious metal like gold can help investors solidify their finances by owning a physical asset.
Bitcoin has often been named digital gold because it’s backed by blockchain technology which is free of a central authority so that no one can control its evolution. The hype around Bitcoin began with tech enthusiasts who were looking for a decentralized and encrypted system they could use to make transactions. Satoshi Nakamoto created Bitcoin as a digital currency that offers an alternative to the traditional banking system and the stock market.
In terms of security, both assets are quite secure. While gold can be stored in highly secure vaults, cryptocurrencies are stored on the blockchain, which is almost impenetrable. However, it’s more challenging for investors to access their gold, as it’s usually stored in banks.
When it comes to volatility, gold is known for its low volatility over time. On the other hand, Bitcoin, together with all the other digital currencies, is a high-risk asset. Gold is usually used to reduce an investment portfolio’s volatility, while Bitcoin is used as an alternative investment.
Both Bitcoin and gold have had their good and bad years in terms of returns. Gold isn’t the kind of investment that gets you rich overnight. Bitcoin tends to have a 4-year halving cycle with bull and bear runs, which enables high returns on investment.
Is Bitcoin a better investment than gold?
No one can pick an asset as the race winner because they are different kinds of commodities with different purposes.