Bitcoin is probably the hottest topic in the world of finance and investments, especially since its meteoric rise in 2017. The question, however, appears to be whether or not this rise is indicative of true value. More and more people are justifying the investments in these Bitcoin and other cryptocurrencies as they claim they are an effective hedge due to the instability of fiat currencies. While it is true that a fiat money system has its weakness, it is the very reason why investors turn to assets such as gold as it provides a safety net for currency depreciation. Now, while Bitcoin and other cryptocurrencies have been widely successful, especially in recent years, it is very unlikely that they will be able to replace gold as the premier financial investment. Here are some of the reasons why cryptocurrencies will not replace gold.
Gold Will Always Have an Accessible Liquid Market
Gold has always been and likely will always be one of the most liquid assets in existence. You can easily convert it into cash immediately, and national borders do not hold it down. So, no matter where you travel, gold is gold, and you can exchange it for whatever the local currency is. However, when it comes to cryptocurrencies, things are much different. Yes, more and more countries abroad are beginning to accept Bitcoin and company, (Japan, in particular) it is still a long way ahead of mainstream acceptance.
The reason for gold’s liquidity is due to its immense market as the larger the market, the more liquid an asset is. As it stands, and according to the World Gold Council, the total value of all the gold ever mined is approximately over seven trillion dollars. The total cryptocurrency market is at about $161 billion, and that number is split amongst the over one thousand different cryptocurrencies.
Majority of Cryptocurrencies Will Not Last
A lot of Wall Street veterans have compared cryptocurrencies’ rise to that of the Internet back in the early 90’s. During that time many of the stocks that rose to prominence were gone after the dot-com boost in 2000. The crash allowed more sustainable companies to thrive like Google and Amazon. It is likely that the same will happen with the cryptocurrencies as many of them may not last with a few of them becoming a standard. Even with the success of Bitcoin and Ethereum, it is still unclear which ones will survive in the long run. It is also possible that with major countries like the US potentially creating their own digital currency, it can create serious problems for the “private” currencies.
Gold’s Long History As A Store of Value
Cryptocurrencies have only been in existence for almost a decade, whereas gold has been around for thousands of years as a store of value. So, gold’s long history allows us to know that stocks and bonds have low or even negative correlations with gold, especially during economic downturns making it a powerful investment. With cryptocurrencies being relatively new in comparison, we do not have as much data that can show the same kind of results. Plus, there have been fifteen times since 2010 when the S&P 500 saw drops of five percent or more; and out of those fifteen, Bitcoin has been down for ten of them.