What We Have Covered in This Article
- 1 Understanding the Purpose of Cryptocurrency
- 2 Precious metals as an investment
- 3 Cryptocurrency as investment
- 4 Gold-Backed Cryptocurrency
- 5 Which is the Better Investment?
Last Updated on November 14, 2021 by Editor Futurescope
Trying to safeguard assets is the main focus of many investors, trying to understand what will gain value, what will dip, and how to minimize the impact when the downturn inevitable happens. Many investors believe that precious metals will perform better than stocks during economic chaos. After all, when markets have dipped in the past, the precious metal sector has traditionally offered safety.
Historically speaking, gold and silver haven’t been severely impacted by a general downturn. The value recovers quicker, they outperform stocks, and they will often stabilize. It seems that precious metals have been the safer option than a volatile stock market when it comes to financial investment.
Recently, there’s a new competitor when it comes to investing. The cryptocurrency was born from a financial crisis, having creators vow never to repeat the same mistakes of monetary authorities. This is particularly true for quantitative easing.
Understanding the Purpose of Cryptocurrency
Creators wanted to create a currency that didn’t inflate like the dollar. They have strictly controlled limits for production, meaning the 21-million-coin limit is all the currency will ever see. Cryptocurrency intends to gain value over time instead of decreasing as the dollar has done throughout the years (since 1913, the U.S. dollar has fallen 98%). The earliest investors and believers in the currency claim crypto would be a superior investment to gold.
Precious metals as an investment
One of the significant advantages of gold and other precious metals is the price stability over time. Investors love stability, especially over periods of turmoil. When markets are doing well, the growth of precious metals improves. When losses are faced, they’re rarely as bad as stock or bond markets. Over the last 50 years, the performance of gold has been comparable to stocks. Within the last 20 years, performance has actually surpassed stock markets.
Cryptocurrency as investment
Within the first decade of creation, cryptocurrency has seen an incredible 9,000,000% growth. The first adopters made a lot of money. The earning potential lures investors into the crypto arena, but understanding sustainability is critical. It seems there is still a level of uncertainty that surrounds cryptocurrencies. From a regulatory aspect, it appears that governments are relatively friendly and open. Should that approach shift to one of hostility (in an attempt to suppress crypto indefinitely), the market value becomes obsolete.
Also known as crypto stablecoin, this type of investment is cryptocurrency backed by digital gold. The token is attached to the current gold price, offering less volatility than altcoins or Bitcoin. Within the crypto world, multiple variations of gold-backed tokens are available. The token or coin represents the value of gold. A custodian holds the value of the gold, making it easily traded by coin holders. As a minimum, the coin’s price will always equal the current value for gold. If the crypto value exceeds the precious metal, the value rises above gold. Should the crypto fail to increase in value, the loss won’t drop below the gold.
Which is the Better Investment?
The better investment depends on the comfort level of volatility. For investors willing to take significant hits during dips, cryptocurrency may be the ideal decision. The market has shown considerable growth over the last decade but holds a substantial risk of complete ruin should the government suppress it in the future. For those wanting a stable investment, precious metals offer lesser volatility and faster recovery during dips in the market. Finally, for those wanting a built-in stop-loss, gold-backed cryptocurrency may be a compromise of both worlds. The token or coin will retain a base value of the precious metal while still potentially growing at the rate of crypto.