Cryptocurrency Vs Gold, Which Investment Is Better?

Investors have turned to both gold and cryptocurrency as alternative investments meant to protect their money. But how does crypto compare to gold? What are the pros and cons of these currencies, and should an investor consider one over the other?

The Many Types of Crypto

First, let’s establish that there are many different types of cryptocurrency. There are thousands of different active cryptocurrency projects, with new projects emerging all the time. A handful of prominent players have gained global recognition as effective currencies, but there are also hundreds of projects that have barely seen the light of day.

For this reason, it is difficult to lump all cryptocurrencies into the same category. Some cryptos are riskier and less liquid than others. Some have much more aggressive growth potential than others. You’ll need to keep this in mind as we discuss some of our points about how crypto compares to gold: some of the benefits of crypto simply won’t apply to all cryptocurrencies.

It’s also important to note that we’re looking at gold in particular, but for the most part gold works the same way as other precious metals, like silver.

A stock photo of gold bars. (Jingming Pan/Unsplash)

Similarities Between Crypto and Gold

What are the similarities between cryptocurrency and gold?

Price fluctuations

Both cryptocurrency and gold fluctuate over time. You can check the gold spot price whenever you want to know how gold is doing in the current market, and you can track cryptocurrency prices whenever you want. Of course, the prices of both asset classes fluctuate for various reasons.

The price of gold may increase due to market volatility or reports of newfound scarcity. On the other hand, the price of crypto may increase because a social media influencer may have recommended it; or because it has reached a certain number of users. It is notoriously difficult to make predictions about the price fluctuations of either investment.

finite nature

Gold investors often turn to precious metals because they know that precious metals are finite. Money tends to derive its value from its limited natural supply. If there were literally money trees in our backyards, where we could always collect as much money as we wanted, the value of money would drop to nothing.

Similarly, if the Federal Reserve loosens the money supply too much, we end up in an inflationary environment where the value of the currency declines. However, since gold and cryptocurrency (at least most cryptocurrencies) are both inherently finite in nature, they tend to have a more constant value and are excellent inflation protection.

Usability

Both gold and cryptocurrency are acceptable payment methods. However, most institutions accept cash more frequently than cryptocurrency or gold. But, you could hypothetically use either to trade with other people.

Gold is more traditional and has a better overall reputation, so it might get a higher acceptance rate. However, a growing number of individuals and organizations are increasingly accepting cryptocurrency as a form of payment.

Decentralization

Cryptocurrency, like any blockchain tool, is decentralized. It relies on a system of thousands, if not millions, of users to operate, rather than the commands of a single administrator or board of directors. This blockchain system is also completely removed from all central banks and governments, allowing it to operate independently.

Gold can be considered decentralized in the same way, as it cannot be directly controlled by a government.

Confidentiality and independence

Both gold and cryptocurrency offer you a degree of privacy, allowing you to participate in transactions without anyone tracking or monitoring them. For example, no one can stop you from trading an ounce of gold with your neighbor, and no one can stop you from sending them cryptocurrency, as long as you use the right tools to do so.

Availablity

If you have access to a computer, you can choose to invest in gold or cryptocurrency at any time. Depending on the tools available, you may be able to create your own cryptocurrency wallet and start buying crypto directly. You can also invest in funds that track the performance of cryptocurrency assets.

Similarly, you can buy physical gold from various online brokers, or you can invest in a fund that tracks the performance of gold. So regardless of your experience or the resources you have, there is a way for you to get involved in either asset.

Epoch Times Photo
This illustrative photograph, taken in Istanbul, Turkey on July 19, 2021, shows a physical banknote and imitation coins of the Bitcoin cryptocurrency. (Ozan Kose/AFP via Getty Images)

How Gold and Crypto are Different

Now, how are cryptocurrency and gold different?

Regulation

Although gold is considered a freely tradable asset, it is heavily regulated. It’s a relatively safe asset, as it’s almost impossible to fake, but physical gold can be hard to come by and even harder to store safely. Also, if you are buying physical gold, you will need to go through an authorized broker or dealer.

At least for now, cryptocurrency has far fewer rules and regulations to follow. So inevitably, this makes it more attractive in the eyes of some, since it is more practical to use.

Practical utility

Gold has some practical utility. Due to its conductive properties and malleability, it is the perfect element to include in many technologies; in fact, there’s probably a significant amount of gold in the smartphone next to you and whatever device you’re using to read this article.

Cryptocurrency does not have the same practical value: it is a digital token whose main purpose is to function as a currency.

Liquidity

Gold is considered a very liquid asset, which means you can easily liquidate your gold reserves if you ever want to sell them. The liquidity of cryptocurrency varies. With some of the largest and most well-known coins, investors see large amounts of liquidity and can trade whenever they want. With smaller, newer coins, liquidity is minimal, making it difficult to close out your positions.

Volatility

Both gold and crypto have periods of volatility. However, gold tends to be a more stable asset due to its long history. People have had centuries to understand the value of gold, and we have detailed historical records of the price of gold to help us understand its fluctuations.

We have no such information for cryptocurrency, and crypto is a much newer type of investment. For this reason, cryptocurrency tends to be very volatile, especially in the early days of a new coin’s launch.

Public acceptance and recognition

Almost everyone recognizes the value of gold. So even if you don’t like it as an investment option, you understand that it is a valuable and scarce resource that will likely continue in value indefinitely. Unfortunately, cryptocurrency does not have as much public support in this area, but its popularity continues to grow.

Epoch Times Photo
An Indian shop assistant arranges gold bars at an Ahmedabad jewelry store in a file photo. (Sam Panthaky/AFP via Getty Images)

Which investment is the best?

What is the best investment: gold or cryptocurrency?

This is a question that cannot be answered directly. To answer this, we would need to know which specific cryptocurrency we are looking at, as each cryptocurrency will present its own strengths and weaknesses.

Even so, gold and cryptocurrency have different pros and cons. The best solution for you will vary depending on your risk tolerance, your long-term goals and the rest of your portfolio.

By Peter Daisym

The Epoch Times Copyright © 2022 The views and opinions expressed are solely those of the authors. They are intended for general informational purposes only and should not be construed or construed as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or other personal finance advice. Epoch Times assumes no responsibility for the accuracy or timeliness of the information provided.

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