CRYPTO CURRENCY
Bitcoin and other electronic currencies present a new form of investment that’s turning heads across the financial world.
While Bitcoins have gained impressive traction in recent years, can this new and unproven market match up to gold?
Why Bitcoin?
Bitcoin is a cryptocurrency, so called due to the encrypted data used in its transaction. Although cryptocurrencies have become very mainstream, it’s not an easy technology to understand (An explanation can be found here) and has become synonymous with volatility.
Bitcoins have gained substantial traction over the last few years. The original Bitcoin cryptocurrency has been joined by a slew of other smaller popular but still substantial cryptocurrencies including Ethereum, Binance and Tether.
The value of Bitcoin went through a meteoric rise just as the pandemic was bringing the physical world to a halt. Between March 2020 and Nov 2021, the value of bitcoin rose from around £4,000 to over £48,000, before falling all the way back to around £14,000 in late 2022.
This volatility in the price of the coins has been exacerbated by the collapse of several crypto exchanges, and some newer coins as well. Hailed as an alternative to gold, cryptocurrencies have clearly shown they are not a safe-haven asset.
Comparing Gold & BITCOIN
HISTORY
Gold
Gold has a venerable history as a store of wealth. It has been used for thousands of years as a currency because of its rarity and elemental stability. It doesn’t tarnish, is relatively easy to melt to produce coins or other tradeable currency, and is rare enough to have an intrinsic value placed on it by centuries of civilizations.
CRYPTOCURRENCY
Bitcoin was developed in 2008 as a way to democratise currency, removing the reliance on central banks to issue, manage and oversee the currency. It’s value is dependent on supply, demand and investor sentiment. During its brief history it has surged and plunged repeatedly.
RISK PROFILE
Gold
Physical gold is a low-risk investment. Owning physical gold comes as close to eliminating counterparty risk as possible. If it is to be stored, it can be stored in an allocated segregated vault, and if it is stored securely at home then the only risk is theft.
CRYPTOCURRENCY
Cryptocurrencies come with substantial inherent risk, one of which is counterparty risk. The collapse of several coins and exchanges has highlighted this risk which could entirely wipe out your investment.
The other key risk is volatility. Often the price surges attract media attention and new investors pile in, pushing the price up. Early speculators then quickly take profits sending the price plunging and leaving late investors will substantial losses.
VOLATILITY
Gold
The gold price is determined by many factors, including supply and demand, strength of the dollar, interest rates, geopolitics and stick market dynamics.
So, while there are certainly fluctuations in the gold price, the impacts are more measured (on the upside and the down). Low volatility notwithstanding, the long-term trajectory is for gold to continue to increase in value as a rare safe-haven asset that serves to reduce risk in a portfolio.
CRYPTOCURRENCY
The price of Bitcoin and other cryptocurrencies is determined by supply and demand, regulation, media, speculation investor sentiment. This means the price can sometimes be determined by speculators, inexperienced investors, positive or negative news (true or not) and the decisions of governments. There is plenty of opportunity for a rise in price, but the risk of a slide is just as real. This volatility may be seen as an opportunity by experienced speculators, but it comes with the risk of substantial losses.
Want to learn more about physical gold investment?
Discover how physical gold and silver investment could protect your wealth and pension. Get started today with our Free Investors Guide.
Want to find out more?
You might also like to read:
We’re available to discuss any questions you may have by telephone or a visit to our London offices at 1 Royal Exchange.
- Reputable & fully accredited
- Buy-back guarantee
- Fully certified metal
- Free delivery or storage
- Customer focussed
- No hidden charges
- 5 star independent reviews