As an investor, you might be considering which assets to invest in. The most popular options you have are gold or Bitcoin. Gold is a precious metal that has been valuable since its discovery. This precious metal comes through mining and a separate refining process.
On the other, digital currencies like Bitcoin and Ethereum have rapidly increased in popularity and value. These currencies are created using blockchain technology, and involve complex equations. However, both investment types do share some similarities.
For instance, both gold and Bitcoin are scarce. Moreover, investors come through mining, with gold coming through mines and Bitcoin through computers. But what would be the best currency to invest in? By comparing gold and Bitcoin, you can understand the purpose they serve in your investment portfolio.
Why Should You Invest in Gold?
Gold is a safe haven for investors who want to ensure their money doesn't lose its purchasing power over time. This precious metal has retained its value since the early days because it does not rust or deteriorate. The unique thing about gold is that you can quickly liquidate it for cash.
Whether you have gold bars, coins, or jewelry, you can sell them without hassle. It is a great investment tool for investors who want an asset that can offer good returns in the long run.
During uncertain market conditions and economic instability, investors rush toward buying gold since it is a much more stable asset. It has gradually increased over time and doesn't inflate or deflate like other fiat currencies.
However, a volatility and uncertainty come with investing in gold. According to the August 2020 Bank of America Global Fund Manager Survey, 3 out of 10 fund managers said the price of gold is overvalued. The SPDR Gold Shares has emphasized this point by reporting that the spot value of gold has been decreasing steadily since August 2020.
Nevertheless, investors should focus on the bigger picture when investing in gold. It can help you mitigate the impact of riskier investments and give you optimal returns in the long term.
Advantages of Investing in Gold
- Acts as an outstanding hedge against inflation
- Easy to liquidate since everyone is willing to buy gold on its value,
- Enjoys a robust asset appreciation in the long run
- It helps you diversify your portfolio
- You can easily invest in small amounts, making it much easier to buy.
- You can enjoy various tax benefits since gold is a non-equity product
Disadvantages of Investing in Gold
- Investing in Gold ETFs can be more expensive than buying coins, bullions, or bars since you'll have to pay brokerage and other fees.
- Banks won't get gold coins or bars.
- You won't get any dividends or interest since gold doesn't generate income.
- The prices can fluctuate depending on the international market conditions
- There is a chance you might get a lower value if you want to sell it urgently
Why Should You Invest in Bitcoin?
Bitcoin is a cryptocurrency that you can use to make digital payments. It operates on Blockchain technology and functions outside central and local banking systems.
Satoshi Nakamoto wanted to develop a system that allows people to make payments without any interference from third-party intermediaries. As adoption for cryptocurrencies increased, Bitcoin saw a rapid increase in its value.
The coin's value reached the $20,000 mark in 2017 before dropping by 80% in the next year. Prices surged again, reaching an all-time high value of $68,000 in November 2021, but saw a drastic fall shortly after. As of July 2022, the coin's price is just shy of $20,000.
The high volatility and unpredictability in the crypto market make it difficult to determine the value of Bitcoin. Unlike stocks, no financial statements or ratio analyses are available to know how the Bitcoin price will change in the future.
While there is growing adoption of Bitcoin and other cryptocurrencies, there are still concerns about depending on it as a method of payment.
Advantages of Investing in Gold
- It offers increased security and excellent anonymity
- It is scarce, which means it can see a rapid rise in value over time.
- Makes it an easy way to carry out international transactions
- Does not include government intervention as Bitcoin operates on a decentralized system
- Its popularity is increasing daily, and many companies accept Bitcoin as a form of payment
- Transaction fees and other charges are also lower
Disadvantages of Investing in Bitcoin
- Commonly used for making transactions in the black market
- Cybersecurity threats make it vulnerable to possible digital scams
- Highly volatile, which means investors can see their gains drop significantly
- You can get any chargeback and refunds
Gold vs. Bitcoin – Where Do They Fit In Today’s Investment Portfolio?
Both gold and Bitcoin bring significant value to your portfolio. You need to consider a few things to know when to invest in each currency.
Bitcoin and other cryptocurrencies have emerged in the market in the last couple of years, while gold has been available since ancient times. However, many people believe that gold has the potential to become a mode of payment and possibly replace cash in the coming years.
The drawback of Bitcoin is that it operates in an unstable environment, and its price fluctuates rapidly. Nevertheless, there have been coins like Tether linked to the US dollar. These coins are considered stable, and investors who want to invest in cryptocurrencies with no volatility should consider Tether.
Interestingly, it contradicts the main objective of Bitcoin, which was to be an independent currency. Gold, on the other hand, is a much more stable and less volatile investment than Bitcoin. Their stability and gradual increase in value over centuries make it an ideal investment choice.
Even countries have linked their monetary system to gold. The gold standard helps determine any currency's value. For instance, if the US government sets the price of gold at $500 per ounce, the currency’s value would be 1/500th of a single ounce of gold.
For now, no countries are using the gold standard system. The US completely abandoned the system by 1973, replacing it with fiat money.
Therefore, gold and Bitcoin will play a critical role in modern portfolios. They will create a balance and ensure your portfolio doesn't take a significant hit. The important thing is that both these investment options will likely stay in the long run.
Similarities between Gold and Bitcoin
Both currencies share similar traits that help them become top picks for investors. Gold is in high demand since various industries use it for their process, including electronics, dentistry, etc. Also, it is a popular good for accessories and jewelry.
Similarly, Bitcoin is a revolutionary innovation that allows people globally to process transactions and make payments without going through the traditional financial system.
With the help of Bitcoin, individuals can easily send money from one country to another at minimal fees. Plus, no governments or central banks can cause problems while sending money through Bitcoin.
The scarcity is also a similarity that both gold and Bitcoin share, since people can only mine a limited amount of Bitcoin. The same is the case with gold since there is a finite amount worldwide. There is no telling how much gold is left in the earth, as companies struggle to find more.
Therefore, investors only have a limited quantity available, making it a scarce commodity. If you want to know whether you should buy gold or Bitcoin, you should consider a few factors. You can ask yourself the following questions before investing in Bitcoin or gold:
- Are you looking to make long-term returns or want to enjoy profits in the short term?
- Do you prefer investing in volatile assets or stable ones?
- What are things that make each currency appealing to you?
- Which currency is easier to liquidate?
Final Thoughts
Investing in gold or Bitcoin depends on your investment goals. If you want to enjoy short-term gains and don't mind the high-risk, high-return nature of an asset, then you can invest in Bitcoin. However, remember that Bitcoin operates in a highly volatile market where prices fluctuate massively in a matter of days.
Investors have seen their profits wipe disappear almost instantly. On the other hand, gold is a more stable investment that can give you good returns in the long term. This precious metal is in limited supply, which means that its value will increase over time.
So, what do you think about investing in Bitcoin or gold? Which investment option is suitable for your investment objectives and persona? Would you stick with the traditional investments or explore new ones?
Tell us about it in the comment section below. And if you want to get some valuable advice regarding investing in gold, then you can contact us today!
