Gold has been one of the longest-standing and most popular assets over many years. It is used to underpin currencies, is valuable in electronics, and highly sought in jewelry. More than any of this, its market has become a well-established one. It attracts investors who are mostly looking for a safe haven-type asset prone to steady growth.
However, gold is under threat from a new asset, Bitcoin. People often identify this digital asset class of cryptocurrency as digital gold since the two entities share many qualities, despite being very different. Bitcoin’s market is breaking into mainstream thinking like a store of value, and as such, has been drawing attention from investors — specifically those who are a lot younger and more digitally inclined.
However, the question remains, which of these assets is the better investment, Bitcoin or Gold? More so, their properties make them good stores of value, but their different markets, appearances, and uses have made these two assets divide opinion quite strongly.
On the one hand, gold has a proven value, various investment products like ETFs, futures markets, and funds. It also has the added advantages of being uncorrelated and thus is a good hedging asset. Bitcoin, on the other hand, offers much greater profits because of its fully digital nature. It is global, inclusive, liquid, easily stored, and moved around. Not to mention, Bitcoin has also shown its lack of similarity to other assets. Bitcoin is worth more than gold.
With all this to consider, it is still challenging to determine which asset is the better investment for you. More so, it is pertinent to look at how to invest in each of these assets and their important differences when trading each one before making up your mind.
Buying Physical Gold
Of course, because gold is a physical core that is a mined mineral, it is possible to buy it in its physical form. This can range from raw minerals to processed nuggets. For most, it will come in ingots, bars, and gold jewelry. There is bullion for severe investors in gold that can refer to gold bullion bars or gold bullion coins.
Bullion doesn’t have any creative value, which makes it different from jewelry or coins. To buy gold bullion, you have to pay a premium over the gold price, which can range from 3 to 10 percent. You will also have to use a safe vault or a bank deposit box to store it.
The pros of investing in gold are having total control of your asset with no interference from third parties like banks. However, this is also a con as the liability rests with you.
Buying Gold Futures
Another way to buy in gold allows you to bypass physically handing the gold by purchasing gold futures contracts. The future agreement regulates contracts that trade on exchanges. They will enable a holder to buy or sell at a specified time in the future and the futures contract price.
In effect, this secures a contract on an asset’s price, in this case, gold, supposing if it will go up or go down over a specific time. This means that if the value goes in your direction, you’ll make a profit. But if it goes against you, you’ll lose money. If your account drops below the maintenance margin, you will have to transfer money to your account to meet the initial margin amount.
The benefits of this are that you can leverage your position, which allows you to put more extra money on your contract than you hold. The settlement is usually in cash that is more liquid and easily accessible. However, this type of investment is also a lot riskier as your investment can come to nothing if the value moves against your contract.
Buying Gold ETFs
Another institutional investment product that has come to the gold market is Gold Exchange-Traded Funds (ETF). These funds allow you to again invest in gold without ever letting your hands physically hold the asset.
In short, Gold ETFs are factors representing natural Gold that may be in paper or dematerialized form. One Gold ETF is equal to 1 gram of gold and is backed by physical gold of very high purity. So when you invest in a Gold ETF, you are essentially investing in digitized gold. Gold ETFs combine the agility of stock investment, as you can trade and sell your ETFs quickly on the market, with the simplicity of gold investment.
On the negative side, Gold ETFs require a high degree of trust, especially that tangible assets back the ETF you are buying., To this end, they are subject to strict regulation and regular audits.
Buy and Hold Bitcoin
One of the most common and easy methods to invest in Bitcoin is buying and holding digital assets. Because it is fully digital, anyone can buy the coin from their smartphone and some exchange app.
Buying Bitcoin needs a wallet, and there are different types of wallets that allow for more transfer and storage methods, from cold wallets to exchange and decentralized wallets. Each of these has its advantages and disadvantages.
For Bitcoin buyers, an exchange wallet is the easiest way to invest in Bitcoin as it allows you access to the market and makes the asset incredibly liquid. However, they do not offer you private keys, which essentially means the exchange is in the custody of your coins, and if something goes wrong with them, you can lose everything.
There are also wallets where you are in control of your private keys. These allow you to hold full custody and control over your Bitcoins. However, the negative feature of this is that it makes it much harder to sell your coins for fiat.
Finally, you can purchase Bitcoin and store it offline in what is known as a cold wallet. This is one of the more secure ways to invest in Bitcoin. It allows you to keep your coins away from online threats as they appreciate.
Online trading is the most profitable way to invest in Bitcoin and is similar to buying and selling stocks. Because Bitcoin’s price is quite volatile, it makes it an attractive asset to trade and can offer large profits for good traders.
Online trading calls for buying Bitcoin and keeping an eye on its price-determining when to sell or when to buy more to sell again at a higher price. Besides, online trading is a very profitable way to make money investing in Bitcoin because recently the price has been growing as much as 40 percent in a single day. It also allows users to instantly buy and sell the asset with ease, often getting large profits in a short space of time.
But of course, one big issue from this form of investment: is Bitcoin a better investment?
It appears that cryptocurrency has moved beyond being an unregulated and purely speculative investment. The Bitcoin market has, in fact, matured and more institutional investment opportunities have come up.
Bitcoin futures are continually growing as more traders realize that the Bitcoin market is an exciting and fast-paced one. Like with gold futures, this method expects users to bet on the direction that the price of Bitcoin is going to go.
These deals can either be short, which means the prediction is that the price is going down, or they can belong, which indicates a projection of a rising price. Bitcoin futures have seen more popular investors enter the market as they are used to the product. While this is advantageous, Bitcoin futures are also a risky way to invest as the volatile market can lead to significant losses if the predictions go wrong.
Bitcoin Mining is a different way to invest in Bitcoin as it is a passive method. It involves purchasing, often expensive, the hardware used to unlock new blocks in the Bitcoin blockchain.
The benefit of this form of Bitcoin investing is that if the profit margins can manage well, it can be an ongoing passive income. However, the negative is that it requires a bit more technical know-how, and the profits are subject to the price in the market as well as the cost of local electricity.
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Top Differences Between Bitcoin And Gold For Traders
The most significant difference between cryptocurrency vs gold as an investable asset is its volatility. Gold has gained a reputation as a slow and steady asset for investment. Thus it makes a good store of value as its price movements are gradual and gentle.
On the other hand, Bitcoin is notorious for its volatility. Its volatility is so well known and very prized that it offers the opportunity for a strategy of short selling with an asset that has high volatility; this is known as a straddle, or a strangle.
In a straddle, the trader writes or sells a call and puts at the same strike price to receive the premiums on both the short call and short put positions. The rationale for this strategy is that the trader expects implied volatility to decrease significantly by option expiry, allowing most if not all of the premium received on the shot put and short call positions to be retained.
Storage is also another major difference between gold and what is known as ‘’digital Gold’’. As indicated in Bitcoin’s moniker, it is entirely digital, and thus there is no possibility of it ever being tangible. This differs totally from real gold, despite the possibility to invest in it digitally.
You can deposit gold in vaults, safety deposit boxes in banks, and personal safes for smaller amounts. On the other hand, you cannot store Bitcoin in the traditional sense.
Instead, it stores a secret number called a ‘private key,’ which facilitates Bitcoin transfer from one to another. Buying Bitcoin can be risky if you do not use a hardware or software wallet to secure your private key.
At the same time, gold can be equally risky. Since it exists in the physical realm it is likely to be stolen or lost if not correctly stored or hidden.
Sources of Demand
Because Gold has a history that reaches back more than 700 years, it has become established in several social areas. Thus the sources for its market are identifiable over four main sectors. These include jewelry – which is the largest and considered a better investment. Next is its use in technology as an investment tool, mainly as a conductor. Finally, central banks also covet it as an investment and hedge.
Bitcoin has not been around for long. Its designation — both as a currency or as an asset — is still up for debate. Because of this, its sources of interest are far less well defined.
Bitcoin’s learning is currently more towards being a store of value than a currency, which was its original intention. Thus, demand comes primarily from investors looking to hold onto it for its ability to appreciate — much like gold investors.
Utility as a Currency
While Bitcoin, originally planned to be a currency, has shifted towards being an investable asset and more digital gold. It can be argued that gold has done the reverse. There was a time when gold was a means of exchange in the form of minted gold coins, but that has changed. It would be difficult to imagine gold as a currency today.
However, Bitcoin still maintains itself to be a currency, even if it is not used primarily for that reason. In order to be money, anything must fulfill three aspects; it must qualify as a medium of exchange, be a unit of account and be a store of value.
Both gold and Bitcoin reasonably can tick all three boxes to be the better investment. Still, the way gold has evolved has made it less of a medium of exchange, especially in consideration of Bitcoin.
These two assets are independent of each other, but at the same time, have a high level of interdependence. Gold is one of the oldest investable assets with a long and storied history. This has set its market up to be predictable, comfortable, and reliable.
For many investors, particularly those who are of the older generation, this suits just fine. Gold does it without concern to be a better investment. It fits into the portfolios of many investors with its lack of correlation and steady profits. However, the digital generation growing to the investing age is not enamored with gold.
Bitcoin, being comparable to gold in many respects, and called digital gold, has some attractiveness for investors. But Bitcoin offers a lot more for the on-the-go generation. Being digital, easily accessible, volatile, and exciting makes Bitcoin the new generation of gold.
More so, the increasing online trading space for Bitcoin has even seen it penetrate the traditional investment space.