Investors have switched to both gold and gold cryptocurrency as an alternative investment intended to keep their money safe. 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 Cryptography
Let’s first establish that there are many different types of cryptocurrency. There are thousands of different active cryptocurrency projects, with new ones appearing all the time. A handful of key players have gained worldwide recognition as effective currencies, but there are also hundreds of projects that have barely seen the light of day.
This makes it a challenge to put all cryptocurrencies together in the same category. Some cryptos are riskier and less liquid than others. Some have a much more aggressive growth potential than others. You should keep this in mind as we discuss some of our points about how crypto compares to gold; some benefits of crypto just don’t apply to all cryptocurrencies.
It is also important to note that we are looking specifically at gold, but for the most part gold functions in the same way as other precious metals, such as silver.
Similarities Between Crypto and Gold
What are the Similarities Between Cryptocurrency and Gold?
Cryptocurrency and gold both fluctuate in price over time. You can look up the spot price of gold whenever you want to know how gold is doing in the current market, and you can follow the cryptocurrency prices whenever you want. Of course, the prices of both asset classes fluctuate for different reasons.
Gold may rise in price due to market volatility or reports of renewed scarcity. On the other hand, crypto may rise in price because a social media influencer may have recommended it; or because it has reached a milestone number of users. It is notoriously difficult to make predictions about price movements of either investment.
Gold investors often turn to precious metals because they know that precious metals are finite. Currency tends to derive its value from its naturally limited supply. If there were literal money trees in our backyards, where we could always accumulate as much money as we wanted, the value of money would drop to nothing.
Likewise, if the Federal Reserve eases the money supply too much, we find ourselves in an inflationary environment where the value of money falls. Since gold and cryptocurrency (at least, most cryptocurrencies) are both fundamentally limited in nature, they tend to be more consistently valuable – and they serve as an excellent hedge against inflation.
Gold and cryptocurrency are both acceptable forms of payment. However, most institutions are more likely to accept cash than cryptocurrency or gold. But hypothetically you could use both to trade with other people.
Gold is more traditional and has a better overall reputation so it can gain a higher acceptance rate. However, an increasing number of individuals and organizations are growing to accept cryptocurrency as a payment method.
Cryptocurrency, as with any blockchain tool, is decentralized† It relies on a system of thousands, if not millions, of users to function, rather than the orders of a single director 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 any government.
Privacy and independence.
Both gold and cryptocurrency offer you a degree of privacy, allowing you to participate in transactions without anyone following or controlling them. For example, nobody can stop you from trading an ounce of gold with your neighbor, and nobody can stop you from sending him cryptocurrency, provided you use the right tools to do so.
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 right away. You can also invest in funds that track the performance of cryptocurrency assets.
Similarly, you can buy physical gold from various brokers online, or you can invest in a fund that tracks the performance of gold. So no matter how much experience you have or what resources are available to you, there is a way you can get involved with both assets.
How gold and crypto differ
How do crypto and gold differ now?
Although gold is considered a freely traded asset, it is highly regulated. It is a relatively safe asset as it is nearly impossible to counterfeit, but it can be challenging to get hold of physical gold and even harder to store it safely. In addition, if you are buying physical gold, you must go through a licensed broker or dealer.
At least for now, Cryptocurrency has far fewer rules and regulations to follow. This of course makes it more attractive in the eyes of some, as it is more convenient to use.
Gold has some practicality. Due to its conductive properties and its malleability, it is the perfect element to include in many technologies; in fact, there is probably a significant amount of gold in the smartphone next to you and then whatever device you are using to read this article.
Cryptocurrency does not have the same practical value; it is a digital token whose primary purpose is to function as a currency.
gold is considered a highly liquid asset, which means you can easily liquidate your gold shops if you ever want to sell them. The liquidity of cryptocurrency varies. With some of the larger, well-known coins, investors see large amounts of liquidity, allowing them to make trades whenever they want. With smaller and newer coins, liquidity is minimal, making it difficult to close your positions.
Both gold and crypto have periods of volatility† However, gold is generally a more stable asset due to its long history. Humans have had centuries to understand the value of gold, and we have detailed historical data on 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. Because of this, cryptocurrency is often highly volatile, especially in the early days of a new coin launch.
Public acceptance and recognition.
Almost everyone recognizes the value of gold. So even if you don’t like it as an investment option, understand that it is a valuable and rare resource whose value is likely to last indefinitely. Unfortunately, cryptocurrency doesn’t have that much public support in this area, but its popularity is growing.
Which investment is better?
Which is better as an investment: gold or cryptocurrency?
This is an impossible question to answer directly. To answer it, we would need to know what specific cryptocurrency we are looking at as each cryptocurrency will have its own strengths and weaknesses.
Even then, gold and cryptocurrency have different advantages and different disadvantages. What’s best for you depends on your risk tolerance, your long-term goals, and the rest of your portfolio.
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