By Moksha Grover
Today, most people have shifted their focus toward investments for the purpose of strengthening their financial position. While there are many ways to strengthen one’s financial position, investment is considered to be the most apposite way. The covid pandemic has taught us a lot about different aspects of life. However, most importantly it has highlighted our way of savings and investments. During tough phases like lockdown, almost everyone suffered financially and was forced to make compromises within their lifestyle. Only those who made wise money decisions at the right time were left uncompromised.
During the pandemic, it was observed that more and more people started investing in safe-haven assets. The most popular safe-haven investment during the covid pandemic has been gold. Gold investments, as we all know, are said to give good returns most of the time. It is also viewed as one of the safest options for investments. However, nowadays, investment in gold is being challenged by cryptocurrencies. Cryptocurrencies are now being regarded as the new hot cake in the world of investments and are said to give even more returns than gold. The most trending and successful cryptocurrency is Bitcoin.
WHAT IS BITCOIN?
Bitcoin is termed a digital currency which is free of any central control or the oversight of banks or governments. Instead, it depends upon peer-to-peer software and cryptography. It is also known as digital gold because its properties are very similar to that of gold. Like gold, bitcoin too has a fixed supply and derives its value through its limited supply and growing consumer demand. Some of the pros and cons of this cryptocurrency are: –
PROS
- Since bitcoin is entirely digital, it can be easily sold a transferred to another person’s account.
- Bitcoin has the potential to give higher returns on investments because of its growing market.
- Bitcoin can be used as a currency everywhere. It can be used for payments at any store that accepts bitcoin.
- Investing in bitcoin now could lead to big payoffs down the road. Because bitcoin is an emerging investment and has the potential to increase in value.
CONS
- There is a greater degree of risk involved in bitcoin as it is extremely volatile and susceptible to large fluctuations.
- Bitcoin is subjected to scams or stealing as it is completely digital and so web-based wallets have the possibility to be hacked.
- Bitcoin’s value is totally dependent upon the phenomena of demand and supply. If the demand for other cryptocurrencies increases more than the demand for bitcoin, its value can decrease.
WHAT IS INVESTMENT IN GOLD?
Gold is a valuable yellow metal and is used for various consumer goods such as jewellery, and it is not in abundance. Gold is a must for all the special occasions in India ranging from weddings to other special functions. In fact, one of the largest markets for gold is found in India. Gold has a big significance in the country’s cultural value and is considered to be a store of value, a symbol of wealth and status and a fundamental part of many rituals. Investment in gold gives fruitful results most of the time. Some of the pros and cons of Gold investments are: –
PROS
- Investment in gold is always a stable option as its value increases over time; even if the economy gets into recession, its value will not decrease.
- If you have your gold stored in a precious metals IRA, it will be stored in a specific, safe vault that is overseen by a custodian who will manage your account. These accounts are often insured up to a certain amount, much like a traditional bank account, so you can rest easy knowing your investment is safe[1].
- Gold is considered to be an ideal baseline for trading purposes and is being used up as long as civilizations have been around. So it is durable in nature.
CONS
- Gold can be used as a currency only during an economic crisis. It cannot be used as a currency to buy something in normal times.
- When you invest in gold you need to keep that physical item stored carefully and safely.
DIFFERENCE BETWEEN BITCOIN AND GOLD
| CHARACTERISTICS | BITCOIN | GOLD |
| Legality, Transparency and safety | Bitcoin has safety issues and is not that transparent and legal | Gold ranks above bitcoin in safety, legality and transparency. |
| Volatility | Bitcoin is extremely volatile. It is more susceptible to market whims and news | Gold is a safer asset and is less volatile |
| Baseline Value | Bitcoin has less baseline value as it is based on a full banking system and many people don’t have access to online banking services. | As gold is used in a variety of ways, therefore, it has more baseline value than bitcoin. |
| Rarity | Rare | Rare |
| Liquidity | Liquid | Liquid |
WHICH TYPE OF INVESTMENT SHOULD BE CONSIDERED? GOLD OR BITCOIN
According to billionaire Ray Dalio, bitcoin is just a digital version of gold but he prefers physical gold over bitcoin. “If you put a gun to my head, and you said, ‘I can only have one,’” says Dalio. “I would choose gold.” Here’s why he prefers investment in gold over bitcoin[2].
- Gold has thousands of years of historical record as a store value and doesn’t face the same competition risks as bitcoin has
- Unlike bitcoin, gold is very less volatile. Its volatility is just one-fifth of the volatility of bitcoin.
- Cryptocurrencies can never replace metals like gold and silver as they are being used for centuries in every corner of the world and have a very strong economic standing as compared to bitcoin. So Cryptocurrencies like bitcoin can only help increase the value of these metals but cannot replace them.
- Gold has offered a very high degree of longevity but such degree of longevity offered by bitcoin is highly questionable.
FINAL VERDICT
Both bitcoin and gold have their own advantages and disadvantages. For now, it is very hard to predict whether an investment in gold will result in better returns or investment in bitcoin. Bitcoin, today is said to be giving more returns than gold. It is alleged that Bitcoin’s market cap will surpass gold’s market cap by 2030. However, nothing is for sure now. Many people prefer gold investments, at the same time many people have shifted towards investments in bitcoin. Bitcoin has a fantastic upside and limited downside, while gold has a more traditional risk-reward balance[3]. Bitcoin is good for short-term investments and getting high returns on it and gold is good for long-term investments and gives relatively lower returns than bitcoin. It is completely the choice of the investor regarding the kind of investment he/ she wants to take up. An investor can invest in bitcoin or gold or in both. It is completely the choice of the investor. But it is advisable to invest in both bitcoin as well as gold as it will help you diversify your investments and increase your chances of high returns.
[1] ‘BITCOIN VS GOLD: WHICH IS BETTER?’, NATIONWIDE COIN & BULLION RESERVE < https://nationwidecoins.com/bitcoin-vs-gold-which-is-the-better-investment/> accessed 11th September 2021
[2] Jade Scipioni, ‘Bitcoin vs. gold: Here’s what billionaire Ray Dalio thinks, make it (4th August 2021) < https://www.cnbc.com/2021/08/04/bitcoin-vs-gold-heres-what-billionaire-ray-dalio-thinks.html> accessed 11th September 2021
[3] Ravi Singhal, ‘Gold vs Bitcoin: Which one is a better option for investment?’, The Economic Times (8th August 2021) <https://economictimes.indiatimes.com/markets/cryptocurrency/gold-vs-bitcoin-which-one-is-a-better-option-for-investment/articleshow/85148997.cms?from=mdr accessed 11th September 2021
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