Are Cryptocurrencies the New Gold?

cryptocurrency gold bitcoin

Gold has long been the traditional stronghold of investments during a falling stock market. The precious metal has long been regarded as a desirable commodity since it was first discovered. Gold is often considered a safe, secure, and important part of portfolio investments.

The Gold Hold

On average, gold has grown by 89 percent over a ten-year time frame, now standing at $1,258 USD per ounce.

It is the best reserve currency for the US dollar. Emerging economies like Russia, Mexico, China, Turkey, and India also have an interest in gold. On the low end, Mexico maintains a 0.3% gold reserve. On the other end, Russia holds 15.2% gold in its reserves.

Central monetary authorities have been a key source of gold demand. According to the World Gold Council, the average annual central bank purchases amounted to 470 tonnes for the period 2010 to 2016, which accounted for 11 percent of the global gold demand.

Thus, the reliability of the gold standard is established beyond doubt and is the go-to investment for anyone looking to build a corpus over time without much intervention.

Crypto… What?

Cryptocurrency is a new “buzzword” in financial technology. The new attention is the result of the solution of an issue once considered unsolvable: double counting in digital cash transactions.This meteoric rise is nothing short of futuristic science fiction coming to life with a large number of people learning the ropes of this new economy and looking at it

This meteoric rise is nothing short of futuristic science fiction coming to life with a large number of people learning the ropes of this new economy and looking at it as an alternative asset. This is the perfect example of technical know-how ruling the financial domain, so much so that people wanting to deal in crypto-currency will have to understand at least superficially, the mechanisms of cryptography and block-chains.

Hence, it’s a surprise to see Bitcoin, the first and most highly traded cryptocurrency reaching the trading height of $3,000 in August 2017. The best reason for this upswing is the classic supply and demand mechanism in play. Bitcoin is being easily seen as a new asset class with institutional interest waking up to its power, and many hedge funds, who are the first movers in emerging and new asset classes, also driving up the demand.

Exotic currencies have caught the fancy of countries where the traditional currencies such as USD and Brazilian Real have fallen over past few months. The easiest cryptocurrency to acquire is Bitcoin, which is now being used as an easy currency to purchase more non-traditional cryptocurrency assets such as Ethereum, Lumens and Litecoins.

Another factor is the acceptability and adaptability of banking systems such as Japan to allow rules to be built around the trading ease of this digital currency and has encouraged participation from more quarters. The discount on Bitcoin trading of Chinese trading with US exchanges has seen a sharp drop from 20 percent to 5 percent as the Chinese have begun to shown interest in adopting the digital currency.

Another uptick has been the replication of the primary market with new kinds of cryptocurrencies emerging and being floated by technology start ups. These alternative currencies or “altcoins” such as Ripple, Litecoin and others have given way to the rise of many initial coin offerings, or ICOs.

Ether, the token behind the Ethereum technology, doubled its price earlier this week. The need for wealthy and small investors to look for newer and less-crowded asset classes is making cryptocurrency trading a new industry. This is obviously giving rise to its own economic cycle like any other asset class and its natural surges and downfalls will give newer trends for the future.

Gold vs. Altcoins

So the next question on everyone’s mind… Are altcoins also as great as gold?

As the markers show, it is becoming a reliable investment alternative and is stable in its form and transaction value. The bigger question is adaptability of the retail investor and the acceptance and safety policies being directed by various central banks. Central banks usually do not encourage retail investors to go to exotic instruments which do not have strong regulations.

Like any other new thing, cryptocurrencies are an exciting new alternative which has its pros and cons. Investors willing to take on the risk and uncertainty will strengthen their portfolio with the possibility of huge returns. On the other hand, there are continual talks of bubbles in the making as more and more people jump on the bandwagon. The cryptocurrency market will continually see corrections.

Until then, people who managed to get a foothold in cryptocurrency during the 2010 – 2013 era can work on an exit timing and cashing in on their altcoins, which would have cost them just a few cents in those early days.

LEAVE A REPLY

Please enter your comment!
Please enter your name here