The News of Gold’s Demise Is Greatly Exaggerated: Why Cryptos Won’t Kill Gold
Cryptocurrencies have shown a lot of resiliency. Every time doubters proclaim Bitcoin is on the mat for good, it manages to claw its way back up.
Bitcoin went into a freefall after the Chinese government announced plans to ban cryptocurrency trading on all domestic exchanges. But early Monday, the digital currency hit its highest level since early September.
The steady climb of Bitcoin and its meteoric rise this year have led to some speculation that digital currencies may usurp gold. There have been headlines proclaiming cryptocurrencies are killing the yellow metal. But there are some fundamental reasons cryptos will never replace gold.
A recent Forbes article pointed out some important characteristics of gold that will prevent Bitcoin and other cryptocurrencies from ever being able to completely push it out.
Most of the focus now is on Bitcoin. But as Forbes points out, there are somewhere in the neighborhood of 2,100 digital currencies traded in the world right now, with a combined market cap of nearly $150 billion, according to Coinranking.com. We are in the early stages of the crypto revolution. We have no idea which cryptos will ultimately shake out as winners and losers. Betting on any one crypto at this point is risky.
Although bitcoin and Ethereum appear to be the frontrunners right now, recall that only 20 years ago AOL and Yahoo! were poised to dominate the internet. How times have changed! It will be interesting to see which coins emerge as the ‘Amazon’ and ‘Google’ of cryptocurrencies.”
On the other hand, gold has a history of preserving and even growing wealth that goes back centuries.
Gold also has physical characteristics cryptos lack.
Fundamentally, Bitcoin and other cryptocurrencies are nothing more than an electronic medium of exchange. They strictly function as a form of currency. They have no intrinsic value. In fact, they don’t even exist in the material world. Gold has value beyond the fact that it is money. It is highly valued as jewelry, and it is increasingly being used in technological applications from medicine, to electronics, to energy production.
Most importantly, gold does not depend on the internet or electricity to work. That could be significant in the event of a major disaster, as the Forbes article points out. If the power grid goes down, or the internet is out, your $1 million of Bitcoin won’t do you much good.
Unlike cryptos, gold doesn’t require electricity to trade. This makes it especially useful in situations such as hurricane-ravished Puerto Rico, where 95% of people are reportedly still without power. Right now the island’s economy is cash-only. If you have gold jewelry or coins, they can be converted into cash—all without electricity or WiFi.”
Forbes offers another important reason we probably shouldn’t say last rights over gold just yet.
Finally, gold remains one of the most liquid assets, traded daily in well-established exchanges all around the globe. Every day, some £13.8 billion, or $18 billion, worth of physical gold are traded in London alone, according to the London Bullion Market Association (LBMA). The cryptocurrency market, although expanding rapidly, is not quite there yet.”
None of this is to say there is no place for cryptocurrencies in the modern world. The development of a decentralized, anonymous system of exchange that doesn’t rely on government is nothing short of revolutionary. And a lot of people have made a lot of money in cryptocurrencies. It’s just that cryptos lack some important features gold and silver posses. Bitcoin is not a replacement for gold. Although they share some similar characteristics, they are fundamentally different things.
Of course, you don’t have to choose one over the other. You can buy Bitcoin and gold. You can even buy gold and silver with Bitcoin. In the world of investing, it’s never wise to put all of your eggs in one proverbial basket. Diversifying your cryptocurrency portfolio with precious metals can help mitigate some of the potential downsides and put you in an overall stronger financial position.
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