On March 2, 2017, a strong controversy arose in the investment community. Was it time to buy bitcoin instead of gold? Behind this thinking was the fact that the value of the bitcoin had equalled the value of an ounce of gold (1,245 USD in New York).
At that time, the price of gold was encouragingly going up, ending 2017 at 1,290 USD per ounce. However, Bitcoin was enjoying an even more rapid ascent. Amid the general euphoria generated by the boom of cryptocurrency, its corresponding value had hit 19,427 USD by December of the same year.
As always occurs in the heat of a trend, a number of analysts predicted that the definitive moment had arrived where gold would decline as an investment. The argument was that the difficulties of its commercialization, the fact of it being a physical good, limited it in comparison with the new, modern and very profitable digital currency bitcoin.
Gold and crypto: frenemies?
A year later the market outlook is very different from what investment experts predicted. Although bitcoin, as well as the rest of the cryptocurrencies, has proved to be profitable, its value has demonstrated a strong volatility and unpredictability. This, coupled with threats from the regulatory environment in several regional markets, has ruined the prediction that it would replace the precious metal as a preferred presence in portfolios. Indeed, in just one year, during the period of March 2017 and March 2018, bitcoin underwent an alarming variability in its price of 560 per cent while gold remained steady and dependable with a variability of just nine per cent.
Set against this landscape, it was demonstrated that gold remains one of the most reliable choices in an investment portfolio. And this is down to not just its profitability, but also its performance in volatile times. In fact, gold has many of the key features keenly sought by cryptocurrency enthusiasts: universal acceptance, the total amount is determined and is in the public domain, and of course, it’s a refuge for wealth.
There still more to it than that. Gold is the ultimate cryptocurrency because:
– it is decentralized, meaning it doesn´t depend on any government and thus does not carry a counterparty risk.
– it has one very distinctive feature: it is not subject to pyramidal or speculative schemes. You either have gold in your pocket or you don’t. Period.
– it has been used as currency and as a protector of wealth for thousands of years and has been universally accepted by all civilizations.
– it has also demonstrated that, despite volatility, it maintains its constant purchasing power over time, being unaffected by inflation, which coupled with the fact that it is scarce and cannot be printed at will, makes for a safer investment.
The FinTech sector has already realised this, and how! New investment alternatives seek to integrate the technological advantages of crypto platforms (mainly the block chain), to adapt them to the gold trade. In this they are trying to unite the best of both worlds. The bet now is on cryptocurrencies backed with gold, or the sale of gold paid with cryptocurrencies. This is a whole new chapter in the book of financial instruments, and a huge market is under construction. We could say that today, unlike in March 2017, gold is playing a role in the new world of cryptocurrencies that has seen it go from antagonistic to protagonist.