Investors of all levels are still debating which of these two assets are worth investing—precious metals like gold and silver or cryptocurrencies like Bitcoin and Ethereum? Opinions differ significantly as one is mined from the ground below, and the other is a virtual currency that is primarily tech-based. But for those who would rather find a middle ground would agree that both can be used to diversify portfolios and protect against inflation.
The debate never seems to die down, and people keep asking: which is the better asset? This article aims to tackle what makes each purchase unique and why they essential portfolio fillers. The discussions will be limited to the strongest contender of each asset type. That’s gold for precious metals and Bitcoin for cryptocurrency investments.
Why Is Gold Still Valuable?
Ancient civilizations always held gold in high regard as a form of currency. It is a symbol of status, and people associate gold with wealth and power. The precious metal still holds immense value even today, and there are notable reasons why. Gold is created by nature, and no man has ever produced real gold by synthetic means. The value placed on gold relies solely on the gradual diminishing of its supply.
According to Phil Baker, the President, and CEO of Hecla Mining Company, gold has always been accessible to the masses in many different cultures worldwide during the last four millennia. Gold has many uses that people from all walks of life can maximize. Central banks are hoarding gold as a means of security. That tangible and physical form is why it still has value today. If you can hold it in the palm of your hand, you can keep it.
Gold is also highly liquid. As mentioned, it is money itself which is why it’s easier to sell. Economies turn to gold for liquidation, which is why it is also known as crisis-proof metal. When governments are suffering from an economic crisis, investors can turn to gold because it is not affected by the status of the economy. It moves in its direction, retaining a high price when the economy is heading downward.
Various online and physical shops offer gold and other types of precious metals in different forms. You can purchase them in bullion bars or coins in different weights. You can also choose to invest in ETFs or mining companies instead. But of course, it depends on your risk level, preference, and capacity. If you need more information, a guide to precious metals and how to invest in them will help you learn how you can use them to your advantage.
The Risks With Gold And Precious Metal Investments
Any form of investment holds risks, and precious metals are no exception. While it gives good returns and is used for building wealth, precious metals, particularly gold, are not suited for every investor.
- Volatility
The price of precious metals can fluctuate and will depend on the movement of the market. The market value is much like a seesaw that goes up or down alternatively, and it can go beneath the price you bought it for. Therefore, there is a risk that your investment could flop.
- Interruptions In Trading
If you’re buying gold from an online dealership, there could be technical errors that could risk trading. The convenience that online shops, such as shopping without leaving home, can be affected. Mistakes could lead to the website not being able to issue any product, or the trouble could be on your side. Technical errors can lead to various issues. Connection issues and hardware troubles can affect transactions that could lead to delays.
- Opportunity Cost
Reducing risk when investing in precious metals also means knowing if the instrument is the right for your risk appetite and if you want it for the long or short term. Investing in precious metals means is that it’s not earning interest or dividends if you own them physically. While gold can still be profitable, you can balance your portfolio by allocating some of your budgets to other instruments that will earn you dividends.
- Capital Gains Tax
Precious metals can be sold once the value rises. But remember that it can also be taxed. The IRS classifies gold, silver, and platinum as collectibles. Therefore, you will need to pay as much as 28% of the capital gains rate. But it can only be taxed if you’re going to sell the gold for cash.
Are Cryptocurrency Investments Worth It?
Nobody knew that Bitcoin (BTC) will be the largest cryptocurrency globally in terms of market value. It is not a physical type of currency, but a virtual one that everyone can access over the Internet. However, banks and governments do not own it and only a handful of nations treat cryptocurrencies like BTC as legal tender. Today, there are 4,000 cryptocurrencies, but only 10 of them are deemed essential. Aside from BTC, this includes Ethereum and Litecoin.
Cryptocurrency, like gold, can be used as an alternative or an additional retirement fund instrument. For example, you can open a cryptocurrency IRA where you can place your purchase cryptocurrency. Unlike gold, though, the IRS treats Bitcoins as property and taxes them accordingly. And just like any other property, the same rules apply to withdrawals and other transactions.
While only more than a decade old, people enjoy cryptocurrency because it is a convenient form of currency. It has a significant benefit when used in transactions because brokers and agents cannot place any complications on BTC, unlike regular money. Using fiat currency may involve fees and commissions. Bitcoin transactions are straightforward because there’s no need for a broker. There are only two parties involved—the sender and the recipient. Transactions are also automatically secured and protected through the blockchain, ensuring that parties can have a record of the transactions done on the platform.
Cryptocurrency transactions are also private. Cash and credit systems require a transaction history that banks and agencies may need. They will check the balance of your account so that they can peek into the availability of your funds and even your credit standing. With cryptocurrency transactions, exchanges that occur between two parties are always unique. All you need to send to the recipient is the exact amount only. That way, no transaction history is likely to be used for fraud or identity theft.
While different from gold, cryptocurrency has one thing in common with precious metals—both are not affected by inflation. As the government does not control it, all types of digital currency are released at fixed rates. Currently, there are 21 million Bitcoins that anyone can access and accumulate.
The Lowdown With Cryptocurrency
- It Can Be A Tool For Illegal Dealings
Since cryptocurrencies are not regulated by a government body, that also means that there is no way that the government will know about illegal activities using this method. The government cannot monitor personal data and BTC wallets. In the past, shady characters have used Bitcoin to transact within the dark web. It’s also easier to hide stolen or laundered money through storage systems for cryptocurrency.
- Subject To Discontinuation
One thing that avid investors must remember about cryptocurrency is that it’s not an invincible entity. Although many experts say that it is inflation-proof, the digital currency is naturally volatile, and it could still be affected by economic and social factors. Aside from that, the regulation of cryptocurrencies is still full of gray areas, and there’s no guarantee that a majority of countries would adopt Bitcoin, for example, as a universal currency.
- Mining For Crypto Is Not For Everyone
Those who want to mine cryptocurrency may find it challenging to do so because it requires large amounts of electricity and computational force to power up rigs and keep them running. There’s also the need for advanced equipment since regular computer units are not equipped to accumulate Bitcoin.
- Suffer From The Effect Of Gapping
During times of high volatility, there could be a staggering rise in cryptocurrency prices, making jumps along the way. It’s common when the market is highly volatile. Top-losses can be affected negatively at the worst level. Additionally, the market can shift to the direction that you didn’t entirely expect.
- Refunds And Cancellations Are Impossible
Platforms dealing in regular cash can deal with wrongful transactions and other technical issues. But unfortunately, transactions with digital currencies are irreversible because once you’ve entered the wrong wallet address, you cannot get the crypto back to your wallet. Losing your passkey is also a death sentence. Unlike banks that have technical customer support, digital currencies cannot help with such since everything is done and encrypted on the blockchain.
In Conclusion
Investors can choose to pick both or choose one depending on their capital, risk appetite, or whether they are in it for the short-term or long term. Both cryptocurrency and precious metals carry their pros and cons, and it is recommended that investors have them both in their portfolios to help shield against inflation. Whatever your decision is, it should be from the knowledge you gain from thorough research and monitoring the markets and viability of each form of investment.