Cryptocurrency vs. Gold and Silver

Cryptocurrency vs. Gold and Silver

Cryptocurrency. It’s a term many of us have heard, but not many of us truly understand what the term encompasses. According to Monia Milutinović in 2018, crypto currency is “a digital currency designed to work as a medium of exchange through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it.”

Ian Alison, Matteo D’Anglo, and others note that cryptocurrency does not exist in physical form (like paper money) and is typically not issued by a central authority. Cryptocurrencies typically use decentralized control as opposed to a central bank digital currency (CBDC).

According to Jan Lansky, a cryptocurrency is a system that meets six conditions:

• The system does not require a central authority; its state is maintained through distributed consensus.
• The system keeps an overview of cryptocurrency units and their ownership.
• The system defines whether new cryptocurrency units can be created. If new cryptocurrency units can be created, the system defines the circumstances of their origin and how to determine the ownership of these new units.
• Ownership of cryptocurrency units can be proved exclusively cryptographically.
• The system allows transactions to be performed in which ownership of the cryptographic units is changed. A transaction statement can only be issued by an entity proving the current ownership of these units.
• If two different instructions for changing the ownership of the same cryptographic units are simultaneously entered, the system performs at most one of them.

Crypto currency versus silver and gold- When it comes to comparing cryptocurrency to precious metals such as gold and silver, Isabell Lee and Will Daniel note that “(b)oth assets, experts say, are often seen as ways to diversify a portfolio or as a hedge against fiat currency inflation brought about by what some observers see as unsustainable fiscal and monetary policies.”

I’m no economics expert, nor am I qualified to offer investment advice to anyone not in my immediate family, so I’ll let the experts weigh in with their recommendations. Though they are addressing crypto versus gold, one can easily insert silver (or platinum or palladium) into most of these recommendations.

1. "My vote would be for gold because it has thousands of years of a historical record as a store of value, has one-fifth the volatility of bitcoin, and doesn't face the same competition risk. The day that Queen Elizabeth trades in the five pounds of gold in her crown for crypto is the day I'll shift course." - David Rosenberg of Rosenberg Research, former Chief Economist and Strategist for Merrill Lynch Canada and Merrill Lynch in New York

2. "Gold and silver have been stores of value and mediums of exchange for at least 4 millennia in every civilization in every corner of the world. It has unmatched accessibility to people of all economic standing and technological knowledge. And gold is the ultimate currency of central banks, silver of the people. There is room for cryptocurrencies too since their digital nature is a fundamental difference from gold and silver. But that characteristic also ensures that cryptocurrencies will never replace gold and silver and will ultimately improve the metal's value." - Phil Baker, President and CEO, Hecla Mining Company

3. "Gold has long been considered to be the safe-haven asset of choice, and, while bitcoin is 'the new kid on the block,' it's debatable that it will eat into gold's market share for a number of reasons. Bitcoin and gold both have significant advantages over fiat currencies because neither can be diluted or debased. There is a possibility that bitcoin could one day cease to exist through hostile legislation. Some bitcoin derivatives have already been banned. Companies such as Facebook who have attempted to start crypto have been prevented from doing so. So, while bitcoin is a more recent form of investment that is certainly receiving a lot of hype, gold has retained its value through centuries. Whether bitcoin will offer the same level of longevity is highly questionable." - Sylvia Carrasco, CEO and founder of the gold exchange platform Goldex.

4. "One of the assumptions underlying bitcoin's bull case is its limited supply, but the supply of cryptocurrencies, on the whole, is theoretically unlimited. Some extol bitcoin as a portfolio diversifier, but it has so far exhibited higher correlations to equities than gold, particularly during periods of equity market stress when diversification tends to add the most value. The demand for bitcoin may be over its skis relative to its likelihood to carve out a significant economic or financial use case." - Michael Reynolds, Investment Strategy Officer at Glenmede.

5. "Both crypto and gold have passionate investor bases… However, there are very clear differences. Gold's history as a basic building block of global money is 5,000 years old and time-tested; Bitcoin is 10 years old and has existed in only one monetary regime. The standard deviation of bitcoin's price is 75%, making it a horrible store of value. Recent price history shows a large bias toward speculative interest, so much so that companies are tempted to include bitcoin on corporate balance sheets to help grow assets in excess of corporate performance. Crypto is a poor monetary substitute. In the US, filing your taxes requires a voluntary disclosure of your cryptocurrency profits. If a crypto trade automatically generated a statement to the IRS as a brokerage transaction does, the speculative outlook could dim."- Robert Minter, Director of Investment Strategy, Aberdeen Standard Investments Bitcoin Bulls

1. "Bitcoin is a 100x improvement over gold as a store of value. The world is realizing this and beginning to reprice digital currency in real-time. Although bitcoin has increased hundreds of percent in the last few months, it is likely to continue appreciating in US dollar terms over the coming years. I suspect that bitcoin's market cap will surpass gold's market cap by 2030. For this reason, I own no gold and have a material percent of my net worth invested in bitcoin." - Anthony Pompliano of Pomp Investments and Morgan Creek Digital Assets

2. "The crypto bull run has seized the attention of millions of people who previously had never considered digital currencies like Bitcoin to be an alternative asset. While gold and bitcoin are both sometimes used as a means to diversify and hold a range of valuable assets, in many ways they are quite different. Bitcoin and other digital currencies can be easily traded on platforms. We have seen progressive global firms offering to receive payment in bitcoin and advocates such as Tesla taking an active role in promoting it. This liquidity, ease of exchange, and wider use in the modern economy are some of the major differentiators. Gold has a relatively defensive purpose- to hold value, whereas Bitcoin and other currencies are intended to have several uses, not least ease of exchange, purchase, and liquidity." - Pavel Matveev, CEO, Wirex.

3. "Based on the trajectory of this digital gold path and use cases globally, we believe bitcoin will be a mainstream asset class in the future. While gold has clear value and safety, the upside in bitcoin is eye-popping if it stays on its current course over the next decade." - Daniel Ives Managing Director and Senior Equity Research Analyst at Wedbush Securities

4. "Gold is, no pun intended, the standard if you want to measure purchasing power over millennia. The liquidity of gold has been consistent over time. Gold is what defines the X-axis of purchasing power over time. Bitcoin, while it shares defensive qualities with gold, has the additional attribute of being aspirational. What bitcoin would seem to possess is the potential to go up to multiples of a moonshot. No one thinks gold will moonshot. Bitcoin is also finite, unlike gold. No increase in demand can change that. There is zero elasticity." - JP Thierot, CEO of Uphold, a digital money platform

5. "I would probably pick bitcoin but why not both? Gold and bitcoin have a very similar aspect to the portfolio. I would add gold as a diversifier. I would add bitcoin as a diversifier. The hedge is diversification. Bitcoin is a tool to get there. Bitcoin is a hedge to losing money to something stable." - Mike Venuto, co-portfolio manager of the Amplify Transformational Data Sharing ETF, a $1 billion ETF.

Source: Markets Business insider

The bottom line? Time will tell if one medium surpasses or outlasts the other, or if they will find homeostasis in the economic world. Invest wisely every time with BOLD. Visit our website today to start or add to your precious metals portfolio!