Is Bitcoin Really the New Gold?

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Despite its extreme volatility, Bitcoin is still the highest valued cryptocurrency on the global market. After its meteoric run in 2017, the cryptocurrency constantly gets media attention and has led to an increase in Bitcoin investments. A report on the cryptocurrency by The Bitcoin Market Journal reveals that there are currently around 22 million Bitcoin wallets, and around 5% (or 16 million) of Americans that own at least one Bitcoin.

Given those figures, it’s quite hard to ignore the implications of Bitcoin, or cryptocurrency in general, being a new type of safe haven investment. Many industry experts have begun to refer to it as the ‘New Gold’.

Gold has long been a popular investment for traders. It’s the most sought-after among all precious metals because of its low volatility. Unlike copper or other commodities, gold has no expiration, so traders are allowed to hold investments for as long as they choose. FXCM explains that gold is used by traders to diversify their portfolios and lower risks in the event of inflation or any negative events that may impact their financial holdings. In other words, they can rely on gold’s stability in times of crisis. Gold is often traded as a derivative through futures and options, but gold stocks are also available and have recently been on the rise.

By declaring Bitcoin as the new gold, these people assume that the cryptocurrency provides similar benefits in terms of it being a safe haven. In reality, Bitcoin’s prices are unaffected by currency clashes, just like gold’s. Meanwhile, others suggest that the two assets are correlated. RBC claimed to have detected a fledgling relationship last December 2017, which they explain to be marginally negative in nature. After all, Bitcoin’s surge in value last year came when gold prices experienced a decrease.

On the other side of the coin, analysts argue that Bitcoin has no chance of replacing gold as a safe haven. The most popular argument is that the cryptocurrency itself is not a tangible asset. In the traditional sense, if something has no other purpose than currency, it cannot be considered a safe haven. Gold fits these requirements since it can be used for making jewelry, substituting teeth, conducting electricity, and more.

In addition, industry expert Jim Rickards says that Bitcoin’s rising price may one day reach zero, since Bitcoin is unregulated and there is a massive possibility of fraud. There’s also the possibility of certain parties manipulating its price in order for others on the outside to perceive it as rising in value. The Bitcoin bubble may burst if a case of fraud was exposed. Rickards also points out that Bitcoin has never weathered a financial crisis or recession, hence no one has any idea how it would perform in the midst of a very volatile and fragile market.

Despite its naysayers, Bitcoin recently joined the Wall Street leagues, opening opportunities for investors to trade on its futures. However, stock trading strategies may not apply here, since Bitcoin is highly volatile. Many have complained to US regulators how unprepared it is for traditional exchanges, while the more optimistic analysts believe the best Bitcoin projects have yet to emerge.

For now, gold may still be the preferred choice in protecting one’s portfolio. In contrast to Bitcoin’s rises and dips, gold’s value is currently on a gradual increase. Investors not willing to gamble are more likely to take advantage of buying opportunities in gold. After all, a thick cloud of uncertainty still hangs over Bitcoin, and its price stability may not even be on the horizon yet. However, it should be acknowledged that Bitcoin does have the potential to be a good safe haven investment sometime in the future.

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