2016 won't be the greatest year at the financial markets. Many experts see a global recession coming up, dark clouds on the horizon. Therefore, investors wonder how to keep their assets safe. Cash only? Buying real values?
It seems that many investors have decided to go for the latter. Prices for gold and silver have been soaring lately. Gold has just reached its 12-month high of $1,260 an ounce. However, some argue that gold is not the best insurance in times of financial turmoil anymore. Instead, they say, Bitcoin is the better choice if you want to hedge against a global crisis.
That, however, seems to be far-fetched. Although cryptocurrencies have gained in popularity, they are still too young to use them as a crisis hedge. Prices are unstable and there are serious security concerns.
Gold has been a reliable crisis hedge for the past 5000 years while Bitcoin prices are relatively unstableGold has been a proven crisis hedge for 5000 years. Fiat currencies come and go, bonds and real estate lose in value. Gold prices fluctuate as well, but so far, investors have never lost trust in the precious metal and prices have remained stable in the long run.
Bitcoin, on the other hand, is a relatively unstable currency. So far, the market is small and Bitcoin is not widely accepted. As liquidity is tight, even moderate orders can cause large price movements.
In 2011, one Bitcoin was equivalent to less than one U.S. dollar. One year later, it was five dollars, in 2013 already 13 dollars. In 2014, Bitcoin soared and reached a value of 1200 dollars. Finally, last year, it came down to 550 dollars. That's not what a stable investment looks like.
Gold can easily be protected from governmental expropriation; Bitcoin, too, but is far less anonymous than many people think
Physical gold can be stored in safe locations all around the world. Obviously, the safety of your bullion depends on the company you are dealing with. In fact, many people have been scammed when buying physical gold. However, if you do your due diligence, you can find reliable gold dealers.
Global InterGold, for example, enjoys an excellent reputation. It is a regulated EU company, that buys gold bars from Swiss regulated suppliers. Moreover, they allow clients to buy even small amounts of gold. These can easily be protected from governmental expropriation, which might happen during an intense economic crisis.
Bitcoin is relatively safe from governmental expropriation as well. However, it is far less anonymous than many people think. The entire transaction history is stored online. Moreover, while it is possible to hide your identity when dealing with Bitcoins, even a small mistake can reveal your entire internet wealth.
Therefore, it happens frequently that hackers bypass security mechanisms and steal large amounts of Bitcoins. That has harmed its reputation. Since the Bitcoin economy was created about about five years ago, there have already been various cases of scam and fraud.
Gold can be traded worldwide using global dealers like Global InterGold; Bitcoin is not widely accepted
Gold is a globally accepted currency. Every bank or gold dealer will accept it, even if you only have small amounts. Moreover, global gold dealers can make it very easy to buy and store gold worldwide. Global InterGold, for example, serves more than 1,000,000 clients all around the world.
Bitcoin is a digital currency, hence, it can be traded online. However, the use of cryptocurrencies is not very widespread. Comparing the amount of gold and Bitcoin dealers is like comparing the amount of charger stations for electric cars and traditional gas stations.
It's true that it is easier to use Bitcoin to make global payments and transactions. However, that doesn't make it the better crisis hedge. During times of financial turmoil, the primary objective is to store value safely in a way that it's protected from governmental preying and high inflation.
At this point, Bitcoin is simply too young to serve as an efficient crisis hedge. Gold, on the other hand, has proven its reliability. The simple fact that gold prices have been rising around 15 percent since the beginning of the year shows that investors are still relying on gold in order to store their wealth.
[Image Courtesy of Wikipedia]