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#1 22-01-2021 08:37:30

johnedward
Admin & Trader
From: Paris - France
Registered: 21-12-2009
Posts: 3068
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Bitcoin vs Gold: a comparison of 2 alternative investments

Bitcoin vs Gold: a comparison of 2 alternative investments


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At the time of writing this article, Bitcoin has fallen by over 6% yesterday, as it corrects peaks that have been reached. Despite increased adoption by institutional investors, Bitcoin has found sellers in the wake of negative headlines from the new US Treasury Secretary Janet Yellen.

Just as Christine Lagarde, the head of the European Central Bank (ECB), had done a week earlier, Janet Yellen expressed concern that cryptos are mainly used for money laundering. As such, investors fear greater regulation, and the decline is justified.

Bitcoin is seen by many as an alternative digital investment. Like gold, which is a physical alternative investment, Bitcoin investors are looking at the potential diversification benefits it brings.

However, Bitcoin has nothing to do with gold. And here's why.

Why is Bitcoin different from gold?

Before going any further, it is worth mentioning that the comparison here is about the role of the two assets in a portfolio. So we are looking at it from an investment perspective.

Firstly, there is no precedent for Bitcoin to ensure that it retains its value during multiple crises. Gold, on the other hand, has been doing so for a long time.

Secondly, there is a complete lack of regulation on cryptos. If regulators try to tax the industry appropriately (for example to cover the environmental disaster caused by Bitcoin mining), many miners will go bankrupt at the slightest drop in price. Gold, on the other hand, has no such problems.

Third, volatility is too extreme for Bitcoin to be compared to gold. It was mentioned at the beginning of this article that the price of Bitcoin had fallen by 6% yesterday. By the time these paragraphs are written, it had fallen by 7.46%, and probably by the time the article comes to an end, it will have fallen or risen again, it doesn't matter. For most investment managers, such volatility, while desirable upwards, puts enormous downward pressure. After all, if you own an asset, you own it with all the good and bad that comes with it.

One day, at the beginning of the trading year, Bitcoin fell by 25%! That said, this is especially good for people who want to get rich quickly. Gold, on the other hand, cannot fall to zero for the simple reason that it has physical properties other than those required in the investment world (i.e. industrial use).

Given all of the above, Bitcoin appears to be based on faith. The faith of its users that there will always be someone else who will buy it and also faith in the technology that supports it - DLT - Distributed Ledger Technology.

Until this changes, Bitcoin's penetration into traditional investments will be difficult.

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"Anything worth having is worth going for - all the way." - J.R. Ewing

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