The phrase ‘bitcoin is the new gold’ is quickly becoming outdated. It’s not on account of the recent price performance of the world’s most traded cryptocurrency, but rather the continuing rate of inflation, mounting geopolitical unrest, and the impact all of this can have on the returns of bitcoin and gold alike. Without being quick to pick a winner in this age-old debate, it’s much better to consider why each of these assets provides unique value to investors, why both can help to place a hedge, and why mutually, each is worthy of a place in a truly diversified portfolio.
A Tale of Two Currencies
To understand why we should no longer pit these two assets against each other, we must first understand their origins. Really, they aren’t very different. We know that gold was coveted by early Egyptian society, yet it was not until 560 B.C. that it started acting more like a currency. Merchants wanted something standardized and easily transferable, so the minting of gold coins began. Easily transferrable. Sound familiar? In 2009, Satoshi Nakamoto created an innovation that would change the world, a peer-to-peer electronic cash system that would allow online payments without relying on a financial institution. While one asset is physical and the other is electronic, the notion of easy transfer and value is the same. And since each has a limited supply, both are seen as valuable due to scarcity. In addition, both bitcoin and gold provide a level of independence from fiat, but with very different risks and effects.
A Long Versus Short-term View
Gold has been around much longer than bitcoin and consequently is more trusted by investors. It has a proven track record, and its performance is easy to understand, especially when considering inflation pressures. Unlike gold, bitcoin has not been around for any major economic downturns and tends to be highly volatile when placed under external factors. A single tweet can change the price of bitcoin for a period of days, something not seen with other asset classes. While cryptocurrency adoption continues to grow, bitcoin has still not yet reached the adoption levels of gold due to the short length of time it has been in existence. The physicality of gold denotes value in that it can be retained and handed over to others through time. No one (yet) is burying themselves with their crypto wallets or passing them down from generation to generation. However, this does not mean there is no value for bitcoin in the longer term. Just ask all the hodlers. If the intention is not to sell, a wild climb in bitcoin prices when bought low means quick gains that you don’t need laser eyes or diamond fists to understand.
The fluctuations, dips, climbs, and dips again, when viewed over time, still seem to point to a trajectory of massive opportunity. And while bitcoin has no inherent value, many investors see this as a positive. Noteworthy entrepreneurs view bitcoin as “digital gold” with true staying power. Apple co-founder Steve Wozniak stated that bitcoin was better than gold due to its transportability and that it’s easier to mine and extract. Twitter’s former CEO, Jack Dorsey, has argued that bitcoin could end up as the sole currency of the internet. The longer bitcoin is around, the more investors will trust it. In fact, in a research note to clients earlier this year, Goldman Sachs stated that bitcoin would most likely overtake gold as a store of value in time. Entrepreneur and investor Anthony Pompliano recently suggested in his newsletter that bitcoin be taken into the central bank reserves with incentives and education provided to the public so that this digital currency could ultimately provide some insurance in case the U.S. dollar is no longer a global reserve currency.
The Best of Both Assets
With any investment comes risk. Bitcoin and gold perform differently, each with distinctive properties, and therefore need to be considered carefully in correlation with overall financial goals both in the short and longer-term. While both assets can provide excellent investment opportunities, why not consider both if you’re wondering which to choose? When the two are not viewed in opposition, the differences become strengths that work surprisingly well together. When the price of one is down, the other is up and vice versa. Each asset performs differently in an ever-changing market. Bitcoin has high return potential, is easily accessible, and offers an immediate settlement. It could provide quick gains in the short-term or become as traditional as fiat currency in the long term. Gold’s price stability makes for a solid performer over the longer term.
In the end, there’s always room for both. Consider the financial goals, length of time in the investment, and rest the archaic debate once and for all.
Symbridge LLC is not an investment advisor and does not provide investment advice. This piece is solely for informational purposes and is not to be construed as a solicitation or any offer to buy or sell any spot products, financial instruments, or other securities. Investment involves risk. Understand the risks associated with trading in financial products before you invest. Read our full disclaimer: https://www.symbridge.com/disclaimers/