So much has been happening lately in the crypto market, with many top crypto assets recording low price levels. This could be a great time to revisit the comparison between crypto and gold. Are bitcoins and other cryptocurrencies still a form of digital gold? This question had initially been at the center of so many debates, but with recent market trends, the answer is becoming obvious. Let’s take a look at some of these differences below.
Centralization
Physical gold and Cryptocurrencies are generally seen as decentralized assets with no central control unit that decides their price and performance. This however doesn’t mean they are beyond the sphere of outside influence. In fact, compared to Gold, crypto assets are known to be very subjective to influence by popular people and news stations. A case study here would be the relationship between Elon musk and dogecoin. With just a tweet or a short speech, he can easily influence the direction of bitcoin and other crypto prices. Physical gold has the edge here since it relies more on market supply and demand than other price determinants.
Inflation Hedge
Many top economists are well convince that investing in gold and other precious metals is the best way to hedge against inflation, stagflation, and recession risks. These economists are not convinced about the prospect of cryptocurrencies as a hedge. These could be due to its frequent price fluctuation and its similar price movements. Ipek Ozkardeskaya, an analyst with Swissquote, was well addressed this issue saying “It is now clear that bitcoin trades parallel to the risk assets, rather than [as] a safe haven,” He further stated that “Bitcoin is still not the digital gold, it’s more of a crypto-proxy for Nasdaq, apparently.”
Unlike Crypto, Gold has historically built trust among investors
Most gold investors have had decades and centuries to study the price and utility of Gold. This period has helped them build enough confidence that has seen gold grow from a valuable commodity and medium of exchange to become a “top-choice” investment option and a safe haven against losses. It is fair to say that crypto is lacking in this regard -is a fairly new asset invented in 2009, and still needs more time to build investors’ confidence as Gold has done in the past.
However, recent market happenings are not helping the case for crypto. From the war in Ukraine to the fiasco that saw the founder of Luna cart away $40 billion dollars, many investors are beginning to lose faith in cryptocurrencies.
Mace McCain, chief investment officer at Frost Investment Advisors, wrote “As events in Ukraine escalated, we saw investors turn to gold,” adding that bitcoin is still “finding its niche somewhere between a speculative tech asset and a digitized hard currency.” Maybe later in the future, this confidence can be built, but for now, most crypto assets might seem too volatile and risky for the average investor.
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