In recent years, bitcoin, NFTs, altcoin and other forms of cryptocurrency have burst onto the investment market, bringing big headlines and attention with them. For those who understand and follow them, cryptocurrencies are appearing to represent a good investment opportunity. However, does this mean that investing in gold, silver and other precious metals has had its day?
Not in the slightest. There are several solid advantages to sticking with physically tangible gold and silver bullion – or at least diversifying a crypto portfolio with some precious metal. For one thing, many people prefer the tangible element of gold and silver, while cryptocurrencies can still be viewed by some with suspicion as potentially adding significantly to the level of risk in a diversified investment portfolio.
Furthermore, since gold is a highly liquid asset, which can be bought and sold quickly and easily, its presence can help increase the value of a mainly cryptocurrency-based investment. For example, gold can be sold at reasonably short notice if problems occur around the crypto side of things, in order to buy time for the markets to settle. Many investors tend to switch from stock to gold if they start to see signs of a recession looming.
Why do people trust gold over bitcoin?
Gold, silver and other precious metals have been used as a form of currency all over the world for centuries. People know where they stand with it and understand how to assess its value. Gold looks and feels attractive and is highly versatile. It can be turned into coins or bars, used to make jewellery and incorporated into industrial applications. In many cultures, gold takes on a religious or spiritual significance alongside its worldlier virtues. For this reason, it is often used to create decorations and objects of worship in churches, synagogues, mosques etc. Gold can also be stored in a physical place with a pretty strong guarantee it won’t go missing or lose value overnight.
Cryptocurrencies, on the other hand, are purely digital and have no physical presence whatsoever. They have still to prove their long-term value and reputation as an investment safe haven. While this is not a problem for many investors, people with lower appetites for risk could feel concerned about not being able to hold their cryptocurrency or protect it from disappearing from a virtual portfolio or deposit account. Bitcoin stocks are also increasing rapidly online, while gold sources remain relatively scarce. Many feel that it’s gold’s perceived rarity that allows it to retain value.
Gold has also traditionally been used by investors to hedge against market downturns due to its longevity and staying power in a crowded investment market. Bitcoin is still very much a developing market surrounded by many people in mystery. Most of the current momentum behind its growth as an investment option is being driven by people’s motivation to explore a brand-new concept and their expectations for high returns. For those willing to take bigger risks in anticipation of higher rewards, it can be very exciting. However, there is still strong demand among all kinds of investors for the safer, better understood and longer-term reputation of gold, silver and precious metals.
Which to choose?
There are advantages to choosing either gold or cryptocurrency for your next investment portfolio. No single piece of advice or opinion either way will apply to every single type of investor. However, gold has been around longer, and is a far more liquid asset. Gold can allow investors to reallocate their portfolios more effectively and react quicker to market fluctuations. Cryptocurrencies like bitcoin are more prone to being affected by hyped-up media articles, regulatory changes and investor sentiment. In the event of a market panic, its price can plummet very quickly, making it more volatile than gold, which is less affected by ‘knee-jerk’ reactions.
The answer to which investment to choose comes down to how much risk an individual is willing to take. Not to mention how much capital they can handle losing. The most important thing to remember is to ask questions before deciding which investment path works best for you and your individual circumstances and aspirations. This will ensure your choice of investment aligns with your wider financial goals.