Text by Matthew Clark, expert of the traditional market, talks about the advantages and disadvantages and investing in gold and Bitcoin
We have all probably had some kind of dream in which someone gives you a large sum of money and you can do whatever you want with it. Some may dream of a long vacation, a boat, a new car or some other important purchase they would like to make.
For that, let’s think in terms of investment. If someone gave you $ 100,000 and said that the only thing you could buy was gold or Bitcoin, which would you choose?
It is not necessarily an easy question to answer, and it is clear that everyone’s situation and tolerance are different.
However, let’s show the case for gold and Bitcoin and see what that tells us.
The gold standard
When looking at gold or Bitcoin, one has been used as currency for thousands of years, while the other is a relatively new investment. For decades, investing in gold has been the standard for anyone looking to protect themselves against the stock market slowdown.
However, before investing in gold, it is important to revisit the different factors that drive gold price performance.
According to World Gold Council:
– Currencies – The strength and weakness of the US dollar and other currencies.
– Economic growth and market uncertainty – Things like inflation, interest rates, income growth, consumer confidence and final risks, all of which change the price of gold at any time.
– Tactical flows – The positioning of derivatives and the timing of prices can have an impact on the price of gold.
– Additional supply and demand dynamics – Examining things like mine production and idiosyncratic shocks on the demand side can put pressure on the price of gold.
For years, gold has been considered a great portfolio diversifier because it protects against inflation and exchange rate risk. It also helps to mitigate losses in times of market volatility.
As you can see in the chart below, since 1970, the gold market has been strong. More recently, the precious metal is reaching its highest point ever.
A clear advantage when considering gold or Bitcoin is history. Even in 1933, when President Franklin Delano Roosevelt implemented prohibitions and rules to criminalize the possession of gold in the United States, the precious metal stood the test of time.
The rise… and the fall… and the rise again of Bitcoin
Although gold has risen steadily over the past 50 years, Bitcoin is on a considerably different path. In the chart below, you can see that the cryptocurrency experienced a sharp rise in price in 2017, but retreated almost as quickly.
Since its pullback in 2018, Bitcoin has recovered some of those losses, but has not yet reached its previous peak. In terms of investment, Bitcoin’s leap speaks of its volatility. This means that there is a greater risk for Bitcoin, but also the potential for greater reward.
Furthermore, one advantage of Bitcoin over gold is that you know how much of it exists. For this reason, there is no risk of overproduction.
In fact, Bitcoin has recently undergone halving – where the same amount of Bitcoin processed generates half the number of new bitcoins. This halving helps the system to avoid inflation, making it more valued.
Gold or Bitcoin: the way forward
I’m a little hesitant when it comes to Bitcoin, mainly because of the volatility. This does not mean that you, as an investor, should back down. It just means that you must be cautious.
Bitcoin will not dethrone gold as the flagship of safe havens, but there is some value in keeping part of the cryptocurrency in its portfolio … just a ton. So think about starting with 1% of your total portfolio focused on Bitcoin.
For now, gold is still one of the strongest hedges against stock market volatility. It is a position that he will hold for a while. But having some cryptocurrency in your portfolio, along with gold, certainly doesn’t hurt and only works to help make it more diverse.
Source: Money & Markets