Gold Versus Digital Currencies

One of the newest forms of investment opportunity, digital currencies such as Bitcoin have been making waves in the media over the past few years with an equal balance of success and horror stories. While the highs make headlines, the lows have been similarly attention-grabbing. In January 2019 for example, Bitcoin compounded six straight months of losses with a further decline in value. Some traders tell of making and losing $1 million in Bitcoin almost at the drop of a hat due to the hugely volatile nature of this asset.

Is this new generation of digital currencies a match for the wealth safeguarding benefits of gold? Almost certainly, not.

What is Bitcoin?
First released as open source software in 2009, Bitcoin is a cryptocurrency that uses digital encryption in transactions. Created by a team of anonymous programmers, the currency has enjoyed significant exposure (thanks in large part to its huge volatility) and uses peer-to-peer transactions with no intermediary. Records are kept in a digital ledger known as a blockchain.

The Bitcoin currency is stored in a digital wallet and is a secure online payment method that far exceeds the security of even the most heavily encrypted credit cards. This encryption has helped the currency gain significant attention from investors.

A global currency
The success of Bitcoin is partly due to its international currency status. In certain parts of Africa, more than 30% of the population owns a digital Bitcoin wallet, but the number of Bitcoins available for circulation worldwide has been capped at 21 million, meaning that more than 75% of the available currency is already in circulation.

Although Bitcoin has soared in value since its inception, it’s also suffered mountainous losses and seems unable to hold its value for any length of time. Investors ride a roller coaster with highs and lows seemingly interchangeable. This makes it perhaps the most volatile of all of the asset classes and arguably, unsuitable for serious investors. Certainly, those searching for other investment avenues to offset risk would be well advised to avoid cryptocurrencies.

How does gold measure up against Bitcoin and other cryptocurrencies?
Although you can’t stop the inevitable march of technology, gold has been a traditional wealth store for thousands of years and still offers exceptional benefits for investors.

Investing in gold, when done correctly, can offer a tax-free investment opportunity and sits outside of interference from financial markets. As gold also has the tangible element that Bitcoin lacks, the price will never drop below zero, unlike its cryptocurrency counterparts as the precious metal is still in high demand.

As we have already seen, cryptocurrencies are also subject to huge losses and widespread volatility that’s impossible to predict. Months and months of price drops are not uncommon, nor is the launch then failure of a new crypto coin.

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