The cryptocurrency frenzy began in 2009 when Satoshi Nakamoto introduced the Bitcoin project to the world, marking the start of mining. Initially, it was a modest venture with a minuscule market cap. However, over the years, Bitcoin has grown exponentially. As of today, December 5, 2024, Bitcoin has surpassed $100,000 USD.
This caught the attention of many investors; small, big and whales. They saw that investing in Bitcoin and other cryptocurrencies could be part of their portfolio for extreme and fast wealth compared to many “old class” assets such as real estate, stocks and gold. The latter is yet viewed as a safe haven investment that stood for generations as a secure store of value. But how can gold vs crypto be compared, and what types of investment are they?
Gold vs Crypto: Advantages and Disadvantages
In today's post, we will explore the advantages of investing in gold compared to investing in cryptocurrencies, as well as their possible disadvantages.
Investing in Gold
Advantages
Store of Value: The price of gold stood across millenniums as either stable or gradually increasing. The price of gold comes from its value in its physical form as well as its purity and quality, and not just from a hypothetical circulation of supply. For this reason, people invest in gold to protect their purchasing and earn a possible margin of profit over time.
Inflation Hedge: It could be tricky to choose between assets to invest in during high inflation periods in your local country. But gold is often chosen as one of the best inflation hedges out there due to its stable value across the world and low volatility.
Tangible Asset: Gold bullions and gold coins come in physical shapes that can be taken anywhere and traded. In that regard, they are better than non-tangible assets that are always stuck in the digital world and do not have any value on their own.
Different Purities and Prices: Gold comes in different “karats” which resemble different purities of the precious metal. Each purity, of course, has its own price value compared to the other. For example, 18 karats correspond to 75% purity, while 24 karats correspond to 99.9% purity.
Various Usage: Gold can be used as jewelry, industrial metal, semiconductor material as well as an investment commodity. It can be melted and turned from any of these forms to the other, and there are gold merchants across the world who can do this for you. In this way, gold can be seen as a multi-purpose investment/item that will always be of value.
Disadvantages
Small Margin of Profit: While gold acts as a secure store of value, this has caused it to have a small possible margin of profit compared to other assets. But this trend is changing, in the past year, gold has experienced an increase of more than 30%. Gold will often succeed in keeping your wealth value as they are, but the only way to earn profit with gold is if the price goes up at good levels compared to the time of your purchasem which is what's hapenning today.
Bounded in Physical World: While it also an advantage in some ways, it is a disadvantage that you can not access your gold bullions or coins from anywhere you want in the world and in any time; they have to be under your physical access if you want to buy or sell them. However, some platforms have been developed to digitalize gold ownership such as Phi Wallet to overcome this disadvantage of gold.
Requires Higher Trust: Since you are buying a physical metal, then you need to be sure of the integrity of the gold merchant that you are buying from. You need to be sure that he/she is selling you the gold described and in the same quality you agreed upon. If you are using a digital gold platform then you need to be sure that all of their gold reserves are regulated and insured, and that it is stored in secure places that can not be easily stolen.
Absence of Fractioanilty: It is hard to sell 0.67 grams of gold or buy 7.79 grams of it. Most often, your gold buying and gold selling operations are bound to specific boundaries and gold shapes that are offered by the gold merchant. This does not apply to digital gold from Phi Wallet, where you can buy or sell starting from 0,01g.
Some Possible Headaches: When you buy gold, then you need to worry about the security of its storage under your hands. You’ll always need to take your gold bullions/coins with you if you want to sell them or turn them into another form of investment. If you plan to do this operation regularly, then this could cause you some headaches. Except if you're owning digital gold where your gold is fully allocated and insured.
Investing in Cryptocurrencies
Advantages
High Margin of Profit: People are mainly interested in cryptocurrencies because of the high margin of profit that they could possibly drive in short periods of time. The price of BTC has jumped, in some cases, by 10x in less than 3 months before. This is unmatched by any other investment type out there.
Various Choices: BTC is not the only cryptocurrency out there. While it is indeed the largest in market cap, there are thousands of others that have their own features and their own investment schemes. There are even “stablecoins” such as USD Tether that correspond to $1 real dollar and do not see their value change. There are simply many options for all types of investors and usage out there.
Spendable: Unlike other safe haven assets or “classic investments”, cryptocurrencies can be used to buy and sell goods in many places even if it's still not regulated in many countries.
Digital in Nature: Because cryptocurrencies are digital in their nature, then this enables a whole new set of features by using them. Exchanges, self-custody wallets, digital services, platforms and monitoring tools can be developed and maintained for any cryptocurrency out there.
Fractionality: You can easily own 0.46 of a cryptocurrency coin or send 7.76 coins from your portfolio to another user on the market. This is important, because if users were forced to either buy 0 or 1 Bitcoins, for example, then either they would have to invest ~$60K to get one coin, or they wouldn’t get anything at all.
Disadvantages
High-Risk Investment: The feature of having a high margin for profit also brings a high risk with it. For example, the price of Bitcoin fell from $67,000 in November 2021 to an average of $25,000 afterward and did not recover for the next 3 years. In some cases and depending on the cryptocurrency you choose, it may never recover at all.
There are cryptocurrencies like “Terra Luna” that saw their value go to zero, and millions of people lost all of their wealth due to it.
While cryptocurrencies can bring huge profits in short periods of time, they can also eradicate your wealth in the same periods as well. So it is important to be careful about investing in them.
Vulnerable to Manipulation: Large investors in the cryptocurrency market are known as “whales”. Usually, whales own a large percentage of a cryptocurrency to the level that they can affect the global price of that cryptocurrency.
This means that if a number of “whales” collaborate together, then they can manipulate the price and drive the highest profits to themselves and eat smaller investors’ wealth. The level of vulnerability of each cryptocurrency depends on its market cap as well as its features.
Non-tangible Asset: Cryptocurrencies have no value on their own, just like fiat currencies. At least in the case of fiat currencies, you have the paper from which they are made. But in the case of cryptos, they are just digital number representations that will not be of value to you without a merchant who accepts them to exchange goods and services.
Cybersecurity Risks: Cryptocurrencies run on a technology called “blockchain” which causes coin send and receive operations to be immutable and non-reversable. And since they run digitally on the Internet, then the crypto platform service you use will have a very high chance of being stolen or attacked by cyber criminals. Law regulations may not be able to track the attackers or restore the stolen coins all the time.
Not Universal: Not all countries and all cities around the globe accept these cryptocurrencies as a method of payment. In some cities, you may not even find a merchant who can accept your coins in exchange for local currency. This would be a problem in places which did not catch up yet to the technology of cryptocurrencies.
Gold vs Crypto: Which to Invest in?
The following table presents a comparison between investing in gold and investing in crypto, as well as what features each of them enjoys:
| Feature | Gold | Cryptocurrency |
| Store of Value | Gold is the absolute store of value out there and has been used as such for generations across world history. | Cryptos have little to no known usage of being a store of value due to their high risk. |
| Inflation Hedge | Gold is often viewed as an inflation hedge, especially in cases of local currency value degradation. | Sometimes, cryptos can be used as an inflation hedge compared to local currencies. However, if their price goes down at the same time, then there will be no protection provided in that regard. |
| High Margin for Profit | Gold has a smaller profit margin, but its role has been proven over centuries of history. Additionally, in recent years, it has shown significant increases in price. | Cryptos are known for their extreme profit margins; in some cases, they can reach 10x, 20x, or even 50x returns depending on the investment period. However, they can also experience very sharp declines. |
| Tangibility | Gold has value in and of its own due to its tangible nature. It can be used for jewelry and many other types of usage. | Cryptos have no value on their own because they are not tangible. |
| Fractionality | It is hard to buy and sell fractional gold. Only digital gold services like Phi Wallet can provide this feature. | Cryptos enjoy fractionality by their very nature. |
| Universal Acceptance | While gold is rarely accepted in shops and services, it can be universally exchanged for any local currency around the world due to its history and existence. | Few places around the world accept cryptos, and in some cities, one may not find any crypto exchange at all. |
| Security | The security of the physical gold bullions you buy is on your own. But digital gold services can help in that regard. | Crypto platforms can be hacked and your coins stolen although you did nothing wrong. While some of them offer insurance to a certain amount of your investment, not all of them do so. Self-custody wallets exist for crypto, but in that regard, they will be like storing gold. |
Conclusion
We have seen the advantages and disadvantages of investing in gold vs crypto in this article, as well as how they compare to each other. Financial decisions, especially those involving investments, should be made thoughtfully and with thorough research.
Carefully evaluate every aspect of an investment before committing. Remember, poorly planned investment choices can significantly impact your financial future, potentially undoing years of effort and hard work. Take the time to plan wisely to safeguard and grow your financial stability.
