Analysts and amateur economists are notorious for issuing forecast after signal after warning of an impending recession. The Great Depression of the 2000s was followed a decade later by the COVID-19 recession, which was one of the shortest in history. The recurrence of recessions has reignited investors’ interest in minimizing their losses if a recession strikes.
Investors have traditionally held a portion of their portfolios in precious metals like gold as a hedge against losses that stocks can take during downward economic trends. This has proven effective, but a new alternative is challenging this old-school method of capital preservation. Bitcoin is proving to be an interesting asset for investors because it has been around long enough to gain recognition and support—it is even showing a few positive trends.
Bitcoin debuted in 2009, and with it came a brave new world of finance and investing. At first, only those interested in digital currencies bothered to give it a chance. However, by 2010 early buyers saw that the Bitcoins they initially got for almost nothing had turned into $0.09 per Bitcoin! Larger-scale Bitcoin mining groups became common after that discovery, as did cryptocurrency exchanges.
When the Covid-19 epidemic was causing global economies to collapse in 2020, speculators and investors noticed that Bitcoin’s value hadn’t dropped with stock values. They started investing money into it, big investors sought methods to create investment vehicles and funds from it, and its price rocketed—by April 2021, Bitcoin had a market capitalization of over $100 billion.
Gold has generally fared well during market downturns since it has maintained its value; if a recession is on the horizon, then its price tends to stabilize and rise as investors flee stocks for gold. This makes it a suitable hedge: an investment that goes up when the stock market falls.
During the Covid-19 epidemic, many investors didn’t immediately flock to Bitcoin; some went with tried-and-true methods and moved into gold. As a result, gold’s price rose from around $1,300 in late 2019 to almost $2,100 by mid-2020 as a number of people converted from bitcoin to traditional options. Its value fell throughout 2021 as economies gradually recovered but remained higher than pre-pandemic recession levels.
Gold has always been a popular way to store wealth, but in 2009, Bitcoin was born. Since then, it’s gained widespread recognition. There are some key differences between the two that might help you decide which one is right for your portfolio.
Gold is difficult to Steal or fake due to it’s well-rounded system for trading, weighing and tracking. This also makes it highly regulated; you cannot cross borders with gold without meeting the required permissions set by various governments..
When you invest in gold, you’ll almost certainly only be able to do so with a licensed dealer or broker; one exception is that you should only buy real gold if you can keep it safe.
Thanks to its encrypted and decentralized system, Bitcoin is difficult to steal and fake. With a few exceptions, it is legal to use across the globe. Although the regulatory infrastructure that could ensure user safety doesn’t yet exist, this is due in part to cryptocurrency’s anonymous nature rendering it challenging to regulate.
Gold is a versatile metal with many uses, from being minted into currency to luxurious items and specialist applications in dentistry, electronics, and more. This unique ability to be applied in so many ways has given gold the reputation of maintaining its value when other assets decline.
Bitcoin’s usefulness is restricted. It is presently utilized solely as a cryptocurrency and a speculative investment. However, there is a new financial technology being developed that will utilize cryptocurrency for economic transactions. Decentralized finance is an emerging financial technology that aims to use bitcoin for financial transactions. Bitcoin has utility in this burgeoning field as a source of lending, borrowing, and perhaps more applications. It also has the potential to get involved in nearly as many applications as gold—but with the same logic, it has just as much potential to become worthless and valuable.
Bitcoin has shown to be influenced by media, investor attitude, and speculation. News about digital currencies can scare investors into making quick decisions that send Bitcoin’s price up or down. Gold is not as susceptible to these fluctuations, making it a safer investment.
In recent years, several alternative cryptocurrencies have emerged to provide greater stability than Bitcoin. These coins are referred to as “stablecoins” because their prices are linked to fiat currency or another stable asset. Tether is connected to the value of the US dollar, for example.
When determining if Bitcoin is a wiser investment than gold, it comes down to what you hope to gain from investing, your willingness to take risks, and how much money you’re comfortable losing if the market fluctuates. If you need assistance creating investment goals or figuring out if BTC is right for you, consider talking with a financial advisor.