Investors consider gold as one of the safest, if not the safest, investments. Throughout history, the worldâs most precious metal is the symbol of wealth. People seek the safety of gold when thereâs a recession or an economic downturn loom. Similarly, itâs the perfect hedge against inflation.
The beauty of gold is that it retains its value much better than currency-backed assets. However, the price fluctuates due to supply and demand pressure. At present, prices are moving sideways and sometimes falling sharply. Goldâs lustre may be dimming now that another asset is upstaging the yellow metal.
Bitcoin (BTC) is gaining tremendously. Gold was having a good 2020 until it lost momentum in July. Inversely, the worldâs most popular cryptocurrency value rose 65% in the same period and is still soaring in 2021. Predictions are swirling that the virtual currency could replace the precious metal as the top-ranked haven asset soon. While itâs a long shot at this time, there are three reasons the conjectures could come true.
1. Durable mechanism
Bitcoin supporters argue that the cryptocurrency can compete with gold and become a superior store of value. From its humble origins, BTC is now a phenomenon. However, severe market volatility characterizes the crypto space. Nonetheless, itâs developing strong security and usability features, according to crypto investors.
Gold hasnât experienced the fast-paced climb of bitcoinâs value. BlackRockâs CIO for fixed income, Rick Rieder, thinks the digital assetâs mechanism is more durable gold, saying, âItâs so much more functional than passing a bar of gold around.â
2. Higher adoption
The building momentum of bitcoin is attracting attention. Some strategists believe higher adoption by institutional investors and asset management firms like JPMorgan Chase could heighten investorsâ confidence. Prominent names in the crypto industry such as MicroStrategy and Stoneridge will discuss how public and private companies can incorporate bitcoin into their balance sheets.
3. Generational change
The younger generation or millennials are turning their backs on gold and shifting to digital gold in investment markets. This investor group loves bitcoin and could even drag baby boomers and Gen Xers to join them.
Beware of the bitcoin mania
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Volatility breeds instability
Volatility is the chief concern with bitcoin because volatility breeds instability. Central banks back traditional currencies like the U.S. dollar and euros. Regulators also worry about the potential misuse of bitcoin. The tide is moving so fast that a repeat of BTCâs fatal crash in 2018 is highly possible.
