For decades, gold has been a wise investment choice to help investors protect and grow their wealth. It is no surprise, gold has been an effective hedge against financial turmoil, a security and safe harbor for many when traditional financial systems seem to be weakening and have grown unstable, and it has been a foundation for the financial strength of national governments as well. In fact, gold was one of the top resources every country was after, either to secure it, take it, or protect it, during World War II as it was often required to pay for materials, armaments, and weapons at a time when national currency became useless for exchange.
Today, however, gold is not the only option investors have with Bitcoin being promoted as “digital gold”. Cryptocurrency, led by the original digital version, Bitcoin, has been raging forward in speculative value growth with amazing results. Marrying itself to the digital age 100 percent, cryptocurrencies are entirely electronic but have produced gains for holders in the 1,000s of percentage points. As a result, many have been drawn to speculate on digital currencies, considering these as higher-returning investments above precious metals and stock markets. If one were to look at the capitalization from December 2020 to March 2021, the cryptocurrency holdings in total measured over $2 trillion, up from $800 billion a few months earlier. It represents a massive movement of money worldwide into the digital arena. Today, after reaching a high of US$62,000 per coin in 2021, Bitcoin has lost a lot of its gleam in a correction and enters the middle of 2021 back at the value it had at the end of December 2020. However, that still represents an astronomical run-up in price point since 2017, when the digital currency last saw its lows. Gold has come nowhere close to the amount of gain it has produced in comparison, even though the metal’s run from 2013 was just as notable.
So, which investment choice in the bitcoin gold debate is better going forward? Clearly, there has been a lot of hype and speculative money moving into digital currencies. On the other hand, the recent crash of Bitcoin still highlights how fragile the digital currencies are for value protection, and gold remains solid in the $1,800/oz range instead. The simple fact is – Bitcoin is not a true ‘store of value’ because of the massive volatility seen in price movements. One tweet from Elon Musk and the price crashes.
Overall, despite the rocketing valuations of Bitcoin, gold remains the better choice. First, the fundamental nature of gold being physical and tangible as well as fully accepted in all markets and locations makes it an ideal, universal form of value exchange. Gold isn’t likely to be rejected. It has been banned from private holders once or twice (the U.S. did exactly that when it wanted to consolidate gold within government coffers in the 1970s), but that didn’t make gold useless. Cryptocurrency, on the other hand, continues to make governments nervous. While the digital assets flow in a decentralized fashion, they also represent a means by which money and transactions can happen confidentially and without easy tracking. China, for example, has recently banned crypto payments in-country, shutting down a significant portion of a new economy that was starting to blossom in the region based on digital values. In short, cryptocurrencies have a long way to go before they can be considered fully established, and gold remains unaffected by politics, regional or international.
Pros and Cons of Investing in Gold
Gold has stability in its corner. As mentioned earlier, precious metal has one of the widest acceptance capacities internationally, and it is recognized by governments, banks, companies, and individuals globally. Many economies continued to be based on gold, and some have argued even the modern economies might fare better if they went back to a gold standard.
Gold also has value longevity in its corner. For something that has been considered desirable and precious for a number of centuries, Gold’s resume is fairly robust compared to most other asset types. The only land has been more powerful in terms of physical holding. And, unlike land, gold is portable, which makes it even more powerful as the asset can be moved and exchanged easily in physical form.
Gold is not something that can be easily lost electronically when it is kept secure. Yes, it is possible to have gold stolen physically, but if the bullion or item is kept in a safe when not in use, that becomes much harder to achieve. Cryptocurrencies can’t say the same thing. While digital currencies rely on blockchain technology and constant reinforcement by thousands of digital approvers of code, which catches mistakes and corrections very fast, it is still possible to steal large sums of digital currency. The most famous of losses was the Mt.Gox exchange, which saw millions of crypto holdings disappear in a hack of the exchange (a $250 million loss at the time). While the currency code itself was unaffected, the thieves added code that simply transferred everyone’s coins from their electronic exchange account to the thief’s account, making digital exchanges the Achilles’ heel of many cryptocurrencies, even today. In 2021, multiple smaller exchanges have been similarly hacked and similar losses experienced on newer, less experienced digital currency types.
Many years back, gold worked as both an asset holding and tradeable currency, but those days are gone. Today, gold is primarily an asset used to protect against instability and inflation. And, given its value, no one would be foolish enough to exchange it for its face value stamped on a gold coin either. That doesn’t stop its buying power. However, gold usually needs to be exchanged for fiat currency prior to using its value for buying commodities, goods, or servers. Very few vendors will take gold outright in its metal form.
The storage of gold and silver need to be considered. Gold is very compact for its value-to-weight ratio and doesn’t require much storage space. Silver can be more challenging to transport and store depending on the total weight/volume you need to protect. MyGold can help with gold storage options, including gold safes and safety deposit boxes. The best option will depend on your unique situation, how much you wish to store, the value of the items, your security arrangements, and your risk profile.
Pros and Cons of Investing in Bitcoin (or Digital Currencies)
Investing in digital currencies like Bitcoin has its advantages and weaknesses as well. On the plus side of things, once one has an account set up with digital currency exchange, buying, holding, and selling cryptocurrency is very easy. In fact, it’s easier than trading in regular public market stocks. Cryptocurrency markets are operating 24/7. Any hour of the day or night, week or weekends, one can move, buy, sell and speculate in currencies. The action moves worldwide, and as long as there is sufficient account authority, one can move sizable value amounts in a matter of minutes through Bitcoin and similar.
Bitcoin and cryptocurrencies may be able to be used for payments, assuming vendors are willing to accept them and set up to do so. Given Bitcoin’s stellar rise in 2020 and 2021, many vendors have begun accepting cryptocurrencies and will do so with more coins than just Bitcoin alone. However, it’s generally not possible to go and buy groceries yet with a crypto transaction. Instead, what is possible is to take out a debit or credit card based on one’s crypto account balance and use that for payment. The credit card company acts as the crypto payment process for any business connected to that network (VISA, for example). The four major cryptocurrencies can also be used for value investing and soon for payments on digital payment platforms like Paypal and Venmo, enhancing the liquidity of holdings online. Interestingly, every year in May, the day when Bitcoin was first used to pay for a pizza is celebrated, and that payment today was estimated to be well over $300 million prior to the recent 2021 Bitcoin crash that just occurred.
As has been vividly proven in 2021 with a run-up to over $62,000 per coin and then a drop by May 2021 to a low bitcoin price of $32,000 per coin, cryptocurrencies are shockingly volatile. Even gold has not had the rollercoaster swings that Bitcoin holders have experienced in the last six months alone. These large price fluctuations have the capability to wreck entire lives and institutions, depending on how much one buys and when during the rise and value of a crypto currency’s activity. And the volatility doesn’t stop; again, the markets are live and active all the time. So, there is no guarantee that a value run-up in 2021 won’t crater out in 2022 or double in value five months later. The only consistent factors have been supply and demand for the given crypto coin.
Bitcoin is easy to steal from people. Once the currency is actually committed and sent via digital transaction, there is no way to reverse it. The only real recovery possible is for law enforcement to find the individual and get them to send the value back to the victim, which is usually unsuccessful. One character in Germany stole millions from victims. He has been since arrested, jailed, and ordered to return the cryptocurrencies, but he’s refused to give up the password. The decentralized nature of Bitcoin is so secure, it’s almost impossible for German law enforcement to break the password without spending millions themselves on the help to do so. Most law enforcement agencies won’t bother with such a costly effort.
Bitcoin can quite easily lose worth, value, and even importance in the future. The cryptocurrency has only been in operation for most investors since 2008. Its significant value has only risen in 2017. Given the nature of its assumed value, when the next big asset comes along, Bitcoin could end up being seen as worthless in the near future. Gold is unlikely to suffer the same fate. It has a longer pedigree over centuries and survived entire turmoil and wars while still remaining extremely valuable. In fact, during conflict gold tends to be wanted even more.
Exchanging Bitcoin for fiat currency can be quite hard with banks stopping any transactions related to crypto, and it’s commonly known in NZ that banks will close bank accounts of anyone dealing in digital currency. And of course, government rules and intervention make crypto very susceptible to being limited and restricted. You see this recently with the IRD forcing crypto exchanges to hand over all customer details and records.
Bitcoin is highly centralized, with Chinese miners reportedly controlling the majority of mining resources. This means Bitcoin is not very “decentralized” and open to market manipulation and control.
Other Comparison Factors
Considering how exchanges occur with gold, when handled by licensed and established dealers there is quite a bit of protection for consumers. First, those dealerships are regulated by local governments in cities and regions within countries. They don’t wish to sacrifice their entire operation for one or two silly transactions. Instead, these businesses maintain a high standard to continue to receive regular customer activity and interest from buyers and sellers. The more stability, reputation, and goodwill these dealerships have, the better they operate.
Crypto exchanges, on the other hand, have little or no control of Bitcoin prices or other coins. Most of them operate as private tech businesses with a general business license, and that’s it. There is no protection of customer holdings if the exchange gets hacked, the business might or might not help customers, and very few laws specifically enforce the financial activities of exchanges. Much of this is starting to change with an increased regulatory overview, and bigger exchanges are willing to comply to have approval by government agencies like the U.S. Securities Exchange Commission (see Coinbase as an example), but by far most exchanges still operate independently and with little scrutiny. Binance, for example, is a major crypto exchange and likes to market that it has no headquarters or physical central office in one particular geographic location.
In terms of rarity, gold and cryptocurrency can be obtained by anyone with enough cash to do so. Both assets can be bought in whole units as well as partial amounts, so just about anyone with the minimal amount of transaction fiat currency can engage in investing in them. Gold is capped by how much available metal can be sold on the market, with a very small portion of the worldwide supply going to investors. Bitcoin is capped by its code to only a certain number of coins possible at all, but it has not yet reached that level, so new coins continue to be “mined” through calculation crunching. That is expected to stop in a few years and no more Bitcoin will be available after that aside from current levels. The same can’t be said, however, for other cryptocurrencies that keep adding to supply.
The application value of gold and Bitcoin are both tremendous as well because of their relative worth. Both assets can be used to pay for high-value transactions. Gold is limited by its physical nature, but borrowing and margin transactions can easily be built on the value when held by an institution. Bitcoin can be easily transferred in large amounts as well as borrowed against with margin as well. That makes both assets quite usable for supporting and funding large-cost transactions. Recently, Colonial Pipeline was the victim of ransomware and an over $4 million payment was made with Bitcoin, transmitting the payment to the hackers instantly through digital channels without any ability to reverse or pull the value back. That makes Bitcoin very useful for both legal and illegal purposes, an issue national governments are very worried about as well.
There is no question that investing in both gold and bitcoin can produce rewards for savvy investors. However, for those who are looking for stability, gold is definitely going to be the better choice and the far more accepted asset of the two. Gold has a stronger track record for longevity (thousands of years), and it doesn’t rely on a computer or the Internet to be transacted. It has been widely accepted by authorities, governments, and markets, and gold continues to retain value as the years go by. Given the above, it only makes sense to choose between the two to put one’s eggs into gold first for safety. MyGold can help. Being dedicated and established gold dealer in New Zealand, our inventory and product lines provide customers access to many of the best choices in gold bullion, both for investing and collecting. Further, we can also help customers with storage needs as well as the eventual liquidation of gold assets in the future. There’s really no reason to fuss with private sales or online transactions to beat the gold price today. Instead, MyGold provides customers with a comprehensive platform for gold investing with security, reliability, and high-level customer service, always. While Bitcoin investments as well as other cryptocurrencies will make the news with their immediate changes, many of the digital assets still have a long way to go to be considered a truly reliable and stable investment asset. Gold has already been there. It has over 2,000 years under its precious metal belt as a proven investment, not just now but for family generations as well. MyGold can help. Let us show you how.