Gold's proven longevity and appeal as an inflation hedge provides a safer investment choice than crypto. As a relatively new market, Bitcoin is still light on regulation and the future of the market is still unclear, unlike Gold.
Since 2009, the inflation-adjusted return of gold annually has been about 3.3%, and the total return has been about 57%. In the same period, Bitcoin has an inflation-adjusted annualized return of nearly 145% and a total return of 33,983,965%.
Can Bitcoin Replace Gold? The simple answer to this is "not yet." Bitcoin is a faith-based currency that has not yet stood the test of time. It is used as currency only in some settings and by certain people, meaning that it is not widely accepted yet.
Gold has long been hailed as the ultimate hedge against inflation. This is because it has a relatively limited supply and is used in tangible products like jewelry.
Gold is considered a hedge against inflation
Gold and other precious metals have long been considered a smart way to fight inflation. That's because it tends to hold its value and preserve your purchasing power over the long haul, despite fluctuations in the dollar.
Gold is often considered a good investment for diversification, as it may be less correlated with other assets such as stocks or bonds. This means that the price of gold may be less affected by movements in other asset classes, which can help to reduce overall portfolio risk.
It protects you from inflation
Inflation can significantly affect the value of your investments. Gold acts as a hedge against inflation because it tends to perform well when other assets lose value. Gold prices generally rise when inflation is high as people turn to the precious metal to protect their wealth.
Gold is considered a smart asset class investment to fight inflation when inflation rises because it preserves its purchasing power for long periods. So, while stocks and other assets, even currency, may experience large fluctuations, the price of gold may be more stable.
Many investors consider gold to be the ultimate safe-haven hedge against inflation. It's been a store of value for thousands of years, and it has real-world uses in jewelry and electronics, which provides tangible value. And unlike fiat currencies, there is a relatively limited supply of gold.
Even crypto advocates themselves recognize that it has a long way to go before it can wholly store value and operate as money. Gold has been used as money for millennia and has intrinsic value. Not only is gold not comparable to cryptocurrencies, it's also under no threat of having to compete with them.
The advantage of Bitcoin vs gold is that Bitcoin (BTC) has delivered significantly higher returns than other assets in recent years. While fiat currencies and very liquid assets can be hard to measure, digital assets like Bitcoin can appeal to potential investors due to their modern market position.
LONDON, Jan 5 (Reuters) - Bitcoin will take market share away from gold in 2022 as digital assets become more widely adopted, Goldman Sachs analyst Zach Pandl said in a research note to clients.
The current market cap of Bitcoin is over $366 Billion, while the market cap of gold is estimated to be over $11 Trillion. Bitcoin's market cap will have to grow over 30 times to flip the gold market cap.
Gold is seen as a safer investment due to its long-term security and ability to hedge against inflation. Crypto has no centralized control or regulation which could mean it's more difficult to protect your investments from fraud or hacking.
Ethereum leverages blockchain technology for its decentralized, transparent system. The technology enables functionality beyond digital currency, such as decentralized applications and smart contracts. The developer community is one of the largest. The Ethereum platform processes transactions faster than Bitcoin.
Here's the upshot: Gold beats Bitcoin as an inflation hedge for a variety of reasons.
In general, though, financial experts often recommend putting between 5 and 20% of your portfolio into gold or other precious metals, though some suggest an even greater allocation.
The markets expect the Fed to fight inflation with rate hikes, thus raising the opportunity cost of holding gold. Rates have been at zero for a long time. That means there has been no opportunity cost to own gold. The Fed's artificially low interest rates have been supportive of gold.
Value of the U.S. Dollar
As a result, gold is often seen as a hedge against inflation. Inflation is when prices rise, and by the same token, prices rise as the value of the dollar falls. As inflation ratchets up, so does the price of gold.
Average annual return of gold and other assets worldwide 1971-2022. Between January 1971 and December 2022, gold had average annual returns of 7.78 percent, which was only slightly behind the return of commodities, with 8.3 percent average annual returns. The annual average return of gold in 2022 was 0.4 percent.
While gold prices may rise through a coming recession, there are a few different reasons why gold makes a good choice for investors during periods of economic downturn. For one, it's a great way to diversify.
Some experts say today's high gold prices will continue rising as inflation persists and the economy remains uncertain. For investors looking to take advantage of the ability to diversify with an asset like gold (which may perform well while others in their portfolio fall) now could be a good time.
A key reason for gold's value is the finite amount of supply of the metal. It is estimated that just over 200,000 tons of gold have been mined over the course of history, the bulk of which has been in the last 70 years, according to the World Gold Council.
Reliable returns. Gold is a reliable long-term investment due to its ability to weather economic storms. It has proven to be a buffer against everything from market volatility to global pandemics.