Wealth preservation and management are key concerns from an investor’s point of view. People want their wealth to appreciate over time so that they can hedge against inflation.
Most people accumulate money all through their lives so that they can live a comfortable life post-retirement. Hence, deciding on the asset in which one should invest can be quite confusing for investors.
Choosing Between Gold And Bitcoin
Both gold and bitcoin are hot favorites when it comes to investment. The yellow metal has been a valuable asset since ancient times. On the other hand, bitcoins are relatively new. But they have gained immense popularity in very little time. So if you want to trade in bitcoins, you must go to crypto wealth.
In November 2020, the value of bitcoins rose by 18%, whereas the value of gold fell by 11%. However, right after one year, in November 2023, bitcoin fell by 65%, but gold fell by 6%. Thus, bitcoin has the potential to give huge margins of profit, but gold is more stable as compared to cryptos like bitcoin.
The Yellow Metal Versus Bitcoin- Which Is The Better Option
The future value of any asset depends on multiple factors, so one should base their investments based on the following four factors.
The Scarcity Of The Asset
It is a classic rule of economics that the more scarce the object, the higher its price. When a good has limited supply and infinite demand, then its price keeps on increasing. There are a finite number of bitcoins that can be mined.
So technically, bitcoins are limited in supply. And the demand for these coins remains steady; their price will keep on increasing in the near future.
Precious metals are also limited in supply. It is a natural resource, so the supply of the yellow metal will come to an end someday. However, how much gold is still present on the earth is ambiguous.
If many more gold mines are discovered in the future, then the supply of this precious metal might increase in the future. So the supply of gold might increase, or it might decrease in the near future. And the value of this precious metal will depend on the interplay of demand and supply for this metal.
The Presence Of Alternatives
The value of any good depends upon the presence or absence of its substitutes. Bitcoins, as such, are limited, but there are hundreds of other cryptos which might be a good replacement for bitcoins. So the future value of bitcoin will largely depend upon the utility and acceptability of other cryptos.
If any other crypto becomes more acceptable than bitcoin, then bitcoins might lose value. Alternatively, if no other crypto can replace bitcoins, then its value will increase manifolds in the coming years.
Likewise, the value of the yellow metal depends upon the presence of other precious metals and stones. There are many valuable metals like silver, platinum etc. which people purchase for investment purposes. But none of these metals has been as famous as gold. Of late, gold jewelry has been increasingly replaced by customized jewels.
However, it is to be seen if customized jewelry can completely outdo the popularity of precious metals. Gold has been a valuable metal for quite some time, and many civilizations consider gold jewelry to be a status symbol. Hence, it might not be possible to completely replace gold with customized jewelry or other metals.
The Safety Of The Asset
If people invest in an asset, they will want that asset to remain safe in the long term. Bitcoins are pretty secure, but there have been instances where bitcoins have been stolen from wallets and crypto exchanges. So if bitcoin remains secure and hack-proof for a long time, then investors will be more confident while investing in bitcoins.
Gold, on the other hand, needs to be protected against thieves all the time. Most people store gold in bank lockers. Thus, keeping the yellow metal safe in the long term is a crucial concern from an investor’s point of view.
However, at present most people do not hold physical gold. They might hold gold bonds or gold securities. The value of a bond or security rises with the rise and fall in the value of the underlying asset. The papers for bonds and securities are absolutely safe and can be preserved in a digital format for a long time.
The Future Legislations In The Major Economies Of The World
An asset’s value also depends on how governments will deal with those assets. For instance, if the government increases the tax on any particular asset, then the value of that asset will become less. So most people will be unwilling to invest in such an asset, and its overall demand will decrease.
Likewise, if any governors encourage the investment in an asset by means of tax concessions or by offering loans etc., then the demand for these assets is expected to rise. And this rise in demand will lead to a rise in the value of such goods.
Bitcoins have not been legalized by many countries. If the big economies of the world do not accept bitcoins as legal in the future, then their utility might be limited.
Gold is legal in most countries of the world. However, all countries have some sort of restrictions regarding the amount of gold an individual can hold. Despite such restrictions, the yellow metal will continue to be legal in almost all nations of the world. So if an investor is looking for certainty in the long term, he should go for gold.
The future of any asset is unpredictable. Several factors like the political climate, the utility of a good, people’s preference for a particular good etc., shape the demand for a good.
All these factors have an effect on the wealth generation potential of an investment. Both cryptos and precious metals are good for wealth creation but deciding which is better among the two is a tough question to answer.