The traditional move was to hedge against stock volatility with gold. It was an extremely effective method in the past, but a new alternative has emerged which is challenging the old-school safe-haven method.
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Covid-19 pandemic taught us many lessons about a number of aspects of life, but one of the most important ones was about savings and investments. Those who made wise and calculated money decisions were the ones whose lifestyle was left uncompromised during the tough phases of lockdowns.
What we witnessed during the pandemic is that people moved towards safe-haven assets. Investments in gold have given good returns. But diminishing the shine of yellow metal, cryptocurrency has given even better returns than gold. And, that is why cryptocurrency is the new hot cake in terms of investment.
Earlier, the traditional move was to hedge against stock volatility with gold. It was an extremely effective method in the past, but a new alternative has emerged which is challenging the old-school safe-haven method.
What speaks in favour of gold?
- The yellow metal is valuable as a material for consumer goods such as jewelry, and it is not in abundance.
- Regardless of the demand, supply remains disproportionately low.
- Gold cannot be manufactured. A company can issue new shares, the federal bank can print dollar bills but there is no such case with gold. It must be dug up from the ground and processed.
What speaks in favour of cryptocurrency?
- Bitcoin is a blockchain-based cryptocurrency that shares some properties with gold. In fact, many have called bitcoin “digital gold” in the past due to its weak relationship with all other assets—stocks especially.
- Like gold, there is a limited amount of Bitcoin.
Comparison between gold and cryptocurrency
- On the basis of legality, transparency and safety, gold ranks above cryptocurrency.
- In terms of rarity, both are rare.
- As far as liquidity is concerned, both are good.
- Talking about volatility, Bitcoin is much more volatile as compared with gold. The yellow metal has a long history of being less volatile than crypto.
- Gold has an unmatched accessibility to people of all economic standing and technological knowledge.
- Most importantly, gold is the ultimate currency of central banks.
- Bitcoin has registered 100x improvement over gold as a store of value. The world is realizing this and beginning to reprice digital currency in real-time.
- Although Bitcoin has jumped multi-fold in the last few months, it is likely to continue appreciating in US dollar terms over the coming years.
- Maybe, Bitcoin’s market cap will surpass gold’s market cap by 2030.
- Both gold and cryptocurrency have their own merits and demerits. It all depends on the sole discretion of an investor where he/she wants to invest.
(Ravi Singhal is Vice- Chairman, GCL Securities Limited. Views are his own)
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)