Many world economists argued that 2020/2021 would be the year when the recession would hit on a global scale, and even though it happened, to some extent, it is still not what most people imagined it would be and the real impact of the Pandemic is yet to established. This was perhaps seen to be the case after so many years of a bull market, investors were worried about a possibility of a predicted recession and suddenly, most of them began looking for ways to move their investments into more stable options.
As we progress more and more into the future, it seems that cryptocurrencies are gaining more popularity than ever before, gaining an upward trajectory each day. At the start of 2021, Bitcoin had an all-time high of $34,000 and most analysts remained bullish about the performance of the digital currency in the next 12 months, and some predicting a bullish trend beyond 2021. While the dollar value in 2020 was decreasing steadily, Bitcoin and other cryptocurrencies tripled in value showing stability despite the economy tumbling due to COVID-19. This has ultimately pulled in more investors who are now looking at the digital currencies with a new angle. Traditional investors who are looking for ways to diversify their investment portfolios are now looking to Bitcoin and other cryptocurrencies to get a better return on their investments.
But, here comes the question, which is the best? is it gold, silver, or Bitcoin?
Well, gold and silver are all dug from the ground, they are forged in fire and you wouldn’t want it falling on your foot. Bitcoin on the other hand is generated by computer systems that crunch complex computations, existing only in bits and bytes. In essence, Bitcoin and the rest of the cryptocurrencies are purely digital. But what most people do not realize is that Bitcoin and the metals share so much in common, in fact, Bitcoin in its early stages was made to mimic some characteristics of gold. Indeed, to get a Bitcoin, you have to “mine” but on a digital platform, just like people mine gold. Because the metal currency and Bitcoin share most characteristics, they both appeal to many investors.
While these two investment assets share so much in common, they each serve a very different purpose in an investor’s portfolio. Thus, whenever investing, it is good to first understand the fundamental differences between these two currencies. The gradual mainstream adoption of cryptocurrencies is the rapid and overwhelming support the currencies have been getting from the growing interest of institutional investors. For example, online cash wallets such as PayPal have already embraced Bitcoin. Some institutional investors also believe that there is a high possibility of the digital currencies overshadowing gold and becoming the most preferred global currency.
Institutional investors getting pulled into the Bitcoin wave is only beginning, which means, with more investors actually liking bitcoin as their preferred investment choice, gold and silver would suffer in coming years. In fact, these sentiments have been echoed by JP Morgan analysts who say, “If this medium to longer-term thesis proves right, the price of gold would suffer from a structural flow headwind over the coming years.”
Can These Currencies Even Be Compared?
Gold has been around since forever while Bitcoin was just launched over a decade ago. So, why do people even have a discussion about these two currencies? How much of Bitcoin do we have in the market, and how much Gold and silver do we have? At the time of writing this article, we had about over 10 trillion worth of gold in the world. Bitcoin had an approximate 450-billion-dollar market capitalization. However, when Gold and Bitcoin are put up against each other, the competition ceases to be about the size but the return on the investment. So, the next obvious question one would then raise is, how much did gold gain in 2020? How much did bitcoin gain in 2020? Clearly, Bitcoin takes the lead gaining over 300 percent while gold is only up 23 percent.
Fast forward to 2021, Bitcoin was already strong hitting a new record, on just the third day of 2021, Bitcoin had a new all-time high of $34,000. But that just a scenario of a good case for the currency. In 2020, the currency had lost 25 percent due to the impact of the virus. That was in March, but by the time we were closing the year, the currency had managed to climb back up gaining new momentous growth and by December, the currency had gained 50 percent. But can it keep up the growth? Well, some analysts believe that this is only the beginning. Some argue that Bitcoin is still very far away from its peak, and some predictions go as high as $100,000.
What should you invest in?
It is possible that Bitcoin will soon replace gold. According to a former Goldman Sachs Hedge-fund manager, Raoul Pal, “Gold can go up three times or five times in the next three to five years… I think bitcoin can get to $1 million in the same time period.” Traditionally, we’ve seen that during the geopolitical and economic uncertainty, funds tend to flood into assets like silver and gold, however, with the finite supply of at least 21 million Bitcoins, this makes it a reasonable solid store of value. According to Eric Demuth, CEO of Bitpanda, “We’re seeing it emerge as a part of the recommended allocation strategy for institutional investors and investment banks. This underlines just how important this asset has become in the world of investing. Right now, we are seeing a dramatic increase of new retail customers entering the market on a daily basis… Bitcoin is about to become gold for the 21st century.”