Cryptocurrency investing, led by Bitcoin, is more popular than ever, with broader adoption by institutions and everyday people alike, especially since non-fungible tokens (NFTs) are becoming a part of our daily jargon. Some see Bitcoin as Gold 2.0, while others claim that, in the face of rising inflation, it is Bitcoin, not gold, that has risen. This raises the following questions:
- Which is better for a portfolio: gold or Bitcoin?
- How should investors approach each?
Keep reading to find out.
The Characteristics of Cryptocurrency Investing
Bitcoin was created with a few key features that have remained constant over the years. One of the most important is that it is decentralised, meaning there is no central authority that can control or approve transactions. With traditional financial transactions, a central server usually stores all the information related to the transaction. However, with Bitcoin, the server is shared among all users, making it more secure.
Another important aspect of Bitcoin is that it is transparent. Every transaction is recorded on a decentralised ledger, available for anyone to see and track. However, there is still some privacy, as the transactions are only marked with the number of the wallet that initiated them, rather than the personal details of the person doing the transfer.
People have seen Bitcoin as a replacement for gold because the total supply is capped at 21 million. The supply of Bitcoin today is still below that level, but it is slowly reaching the cap. Once achieved, no new Bitcoins will be created, making this particular cryptocurrency investing a good inflation hedge.
The Characteristics of Gold
The gold standard is an agreement between countries that their currency is redeemable for a fixed amount of gold. This means that the value of gold backs the country’s currency, and the government can’t print its way out of problems.
After World War II, the Bretton Woods system was established. This system’s major currencies were pegged to the U.S. dollar. And the dollar remained pegged to gold. This agreement made the U.S. dollar the de facto world reserve currency.
However, eventually, the U.S. found itself under financial pressures due to the Vietnam War, an extensive debt-fueled welfare program, and a trade deficit. In addition, significant economies were demanding payment in gold rather than dollars. As a result, President Nixon abandoned the gold standard.
Most of the gold that has ever been mined is still accessible today. Current estimates suggest that 197,576 tonnes of gold have been mined. Today, 75 percent of the annual gold supply comes from mining. The rest comes from the recycling of gold. Because gold is virtually indestructible and does not tarnish, recycling it from jewellery or technology is easy.
Which Is Better?
Using the comparative lens, measuring cryptocurrency investing and gold is inaccurate since both have different features. Digital currency is highly volatile, especially when there are sudden market fluctuations. Traders buy them when low and sell them when high, much like stocks, so they are great inflation hedges. On the other hand, gold’s value remains nearly constant, so they’re better for long-term investing and wealth generation.
It’s not an either-or scenario when it comes to Bitcoin and gold. It’s better to have both, one for the short-term and another for the long-term. You can learn more about cryptocurrency investing at Brawler’s Guide today. We have content for today’s ambitious upstarts who want to become tomorrow’s big thinkers and doers. Visit our website for more resources!