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During periods of inflation and economic uncertainty, investors seek safe assets with high returns to offset losses. Gold, on account of its enduring appeal and historical relevance, is regarded as a safe haven asset, which means that it’s expected to continue to have (and even gain) value during periods of economic downturn. Nevertheless, many investors choose Bitcoin over gold, looking for quality and growth. Within the cryptocurrency industry, Bitcoin has acquired the reputation for being digital gold, storing value by its very nature while enabling efficient, borderless transactions. Even if it’s been tested in bear markets, investors have embraced Bitcoin as a speculative hedge against inflation, recession, and socio-economic crises.

Bitcoin is the cryptocurrency of choice for institutional and retail investors. There are two ways to buy Bitcoin: through a wallet app and centralized exchanges. You can buy Bitcoin with bank transfer, just so you know. If you’re still unsure if it deserves a spot in your portfolio or if you should stick to something traditional like gold, here’s what you need to know about both assets. 

Bitcoin 

New cryptocurrencies have promised to overtake Bitcoin via new features or other conveniences, but none have succeeded. Bitcoin is the leading cryptocurrency, followed closely by Ethereum. It was developed as a peer-to-peer payment method. Still, Bitcoin’s use cases are growing because of its increasing value and competition from other blockchains and digital assets. Online payments can be sent directly from one party to another without going through a financial institution; the network timestamps transactions by hashing them into a chain based on proof of work. Bitcoin had a price of zero when it was introduced in January 2009. In little more than a decade, it’s become the most exciting trading opportunity. 

Bitcoin is a fairly liquid asset, meaning that you can swiftly buy and sell cryptocurrency, usually in a matter of minutes. Nonetheless, during times of euphoria and panic buying/selling, Bitcoin may not be so liquid. It depends on market conditions. The scarcity of Bitcoin has long maintained its position as a hedge against inflation. The supply is fixed due to the mathematical rules set in the code. There will never be more than 21 million Bitcoins – the limit is embedded into the protocol, so it can’t be changed by anyone, whether developers or miners. 

Just like gold and other precious metals, Bitcoin derives its value from consumer demand. At present, there’s demand for Bitcoin following the approval of spot ETFs. Mainstream investors are now able to access a variety of ETFs, which drives a surge of capital in the asset class. Opinions vary on how much its price will increase in 2024 and whether the bull market will remain. The correlation between the U.S. dollar index and Bitcoin is inversely proportional, so if the dollar strengthens, the value of Bitcoin decreases, and the other way around. Bitcoin, thus, creates an opportunity to build a diversified portfolio. 

Gold 

Gold dates back over 5000 years, although it wasn’t looked upon as a precious metal until much later. It’s a tangible asset that holds deep value and meaning that goes beyond its physical properties. While some think gold has a risk-adjusted value, others view it as a high-risk asset with no intrinsic value beyond what consumers are willing to pay for it. As opposed to stocks or bonds, gold’s value isn’t tied to the performance of any industry, sector, or company, which is why it’s a fantastic store of value and a safe haven asset. You can leverage its unique properties to enhance your investment portfolio. 

With its limited supply, it’s no wonder that gold can hedge the effects of inflation, enabling a level of consistent returns. Gold is rare throughout the world, found at an abundance of roughly 0.0013 parts per million, and it’s precisely this rarity that makes it so appealing. Major governmental institutions, central banks, pension funds, and family offices hold large stocks of gold. Some countries want to reduce their dependence on the U.S. dollar and survive due to gold purchases. If there’s an economic collapse, gold proves its value, performing well even in the most volatile market conditions.  

Gold has been historically used as a currency and raw material for the production of jewelry. The volatility in silver can be two or three times greater than that of gold on any given day, meaning the precious metal’s value remains largely stable. Market fluctuations make investors more nervous, as they’re unsure if the rate of return comes back to its average. Volatility can emerge when prices are flying high or are taking a plunge. From an investor’s standpoint, the first situation is desirable, while the latter is obviously not. Bitcoin is a more volatile investment, but it provides quicker returns. On the other hand, gold has limited growth potential. 

Regardless Of Which Option You Choose, Do Your Homework 

Bitcoin and gold alike have their fair share of benefits and risks, so it’s recommended to have an entry and exit strategy if price fluctuations become a risk. Should the value move to your advantage, carefully decide when and where to take profits. Gold that’s sold within one year of purchase is taxed at the regular income tax rate; sold after this period, it’s subject to capital gains tax. As far as Bitcoin is concerned, it can be taxed either as a short- or long-term capital gain, which means the tax rate depends on the length of time you own cryptocurrency. 

All in all, the decision to invest in Bitcoin or gold depends on your investment goals and appetite for risk. Gold doesn’t provide an opportunity for outsized gains, but it’s less volatile than Bitcoin, which explains why it’s adopted by investors as part of a diversified portfolio strategy. If you’re an aggressive investor, Bitcoin would make a good addition to your portfolio. It’s genuinely decentralized, has a finite supply, and can be used to transact with anyone worldwide. You can buy funds that track the price of Bitcoin using traditional brokerage accounts. Shares are traded throughout the day at prices based on the supply and demand in the market.