Cryptocurrency As A Safe-Haven Asset: Crypto Vs. Gold
- Cryptocurrency is a virtual asset that can be stored online.
- Gold is a physical asset that has ownership.
- Both are better investment options but gold’s stability may be impacted by market factors and government intervention.
Cryptocurrency and gold are both rare in their categories of virtual currency and metals, respectively. The better investments from both depend upon the investing strategy and risk tolerance. However, gold’s stability as a haven asset is impacted by government regulation and market volatility.
Cryptocurrency And Gold
It is the digital or virtual currency underpinned by cryptographic systems. These do not involve the use of third-party intermediaries and enable secure online payments. ‘Crypto’ means various encryption algorithms and cryptographic techniques that safeguard entries, such as public-private key pairs, hashing functions, and elliptical curve encryption. These are based on blockchain technology, which is essentially a set of connected blocks of information on an online ledger.
Each block contains a set of transactions that are verified independently by each validator on the network. Cryptocurrency is attached to a reputation as an unstable investment due to high investor losses due to hacks, bugs, scams, and volatility. Hence, cryptocurrency investors should be aware of the following risks: user risks, counterplay risks, regulatory risks, management risks, market manipulation risks, and programming risks.
The advantages of cryptocurrency are that it removes single points of failure, removes third parties, can be used to generate returns, makes it easier to transfer funds between parties and facilitates remittances. The disadvantages are pseudonymous transactions, being expensive to participate in a network and earn, volatile prices, criminal uses, and off-chain security issues.
Gold performs very well during market corrections as it maintains its value. Its price holds steady somewhat and tends to rise as investors move from stock to gold during times of recession. Hence, it is an investment that moves oppositely, against market corrections or recessions. Many investors turned to traditional strategies and transitioned to gold during the COVID-19 pandemic.
Better Option
The best form of investment can be estimated through different factors such as regulations, utility, liquidity, and volatility.
- Regulations
Cryptocurrency depends on the country. However, gold faces some restrictions.
- Utility
The number of uses of crypto coins is increasing. Gold is used across many industries and products.
- Liquidity
The liquidity of crypto coins depends on the market, whereas the liquidity of gold depends on the market and type of asset.
- Volatility
Bitcoin started 2021 at $32,782, rose to a high of $68,789, and closed the year at $46,306. Gold started 2021 at $1,943 an ounce, dropped to a yearly low of $1,683, and ended the year at $1,805.
Conclusion
Gold has physical ownership, whereas cryptocurrencies can be stored and exchanged online very easily. Gold has been a hedge against the possibility of economic instability. But cryptocurrencies are also becoming more well-known as a risk-free investment option. Cryptocurrencies are less vulnerable to market volatility and government regulations due to their decentralized nature. Gold’s stability as a haven asset may be impacted by government intervention and market factors.
