Cryptocurrencies are often in the limelight because of their wild up and downswings. The heightened volatility in the prices of cryptocurrencies makes them extremely risky, but also provides a chance to earn higher returns. Due to the popularity of cryptocurrencies, many crypto enthusiasts consider Bitcoin to serve as a substitute for gold in the future because of its purported ‘store of value’ attribute. However, this claim is disputed by another school of thought which doesn’t consider Bitcoin as a possible future replacement of gold. In this article, we will determine why it is better to invest in gold instead of cryptocurrencies.
Cryptocurrencies are Extremely Volatile
Cryptocurrencies are highly volatile, and they can move up or down by as much as 30% in a single day. So, if the market moves against you, your investment could quickly evaporate.
On the contrary, the price of gold is much more stable and does not move as wildly as other assets, which makes it a favourable and low-risk investment.
Cryptocurrencies are Not Suitable for Long-term Investment
Due to the high volatility of cryptocurrencies, they are more suitable for short-term trading instead of long-term investment.
On the other hand, gold is ideal for long-term holding because it serves as a hedge against inflation, acts as a store of value, and provides decent long-term returns with little downside risk.
Cryptocurrencies Involve Security Risk
Cryptocurrencies are stored in crypto wallets and are traded on exchanges, which are prone to attacks from hackers. There have been many instances where hackers stole cryptocurrencies from crypto wallets and exchanges.
In contrast, gold investment is shielded from the attacks of hackers as you either own physical gold or hold exposure to gold indirectly using other financial instruments, such as futures contracts or virtual gold.
Cryptocurrencies are not a hedge against inflation or store of value
Cryptocurrencies do not serve as a hedge against inflation or a store of value as they are highly volatile and does not move in tandem with the CPI inflation index rate.
Gold, in contrast, has consistently generated returns that outpaced the rate of inflation, thus acting as a hedge against inflation while storing the value of your money.
Conclusion
Gold has proven its worth over many centuries, and we can say with certainty that gold will maintain its attribute of serving as a hedge against inflation and store of value. Cryptocurrencies are highly volatile, which do not make them a decent long-term investment.