Wealth preservation is a growing concept, especially after the significant and continuing struggles of the COVID-19 recession. For most investors, preserving wealth is a matter of investing in store-of-value assets — those commodities that maintain or increase in value over time. The most common and popular store-of-value asset is gold, recognized as a safe-haven commodity.
In recent years, cryptocurrency has drawn comparisons to gold, with Bitcoin being the primary point of argument. Over the last decade, Bitcoin has skyrocketed in value, leaving many investors curious about the cryptocurrency as a wealth preservation asset.
Gold and crypto assets have numerous benefits, including diversification, but they also have drawbacks. The drawbacks represent the areas where investors vary, with some arguing crypto is too volatile and others suggesting gold is too limited. Whether you should choose gold or cryptocurrency depends on your understanding of the assets and your comfort level with risk.
CRYPTOCURRENCY PROS AND CONS
Cryptocurrency, like Bitcoin, is an electronic peer-to-peer cash system, allowing the elimination of third-party actors in favor of a two-party transaction. Because crypto can protect its value by promoting a fixed supply, unlike fiat currencies, it is a beneficial investment with potential as a long-term strategy to preserve wealth.
Despite the continued support of many influential figures, Bitcoin and other cryptocurrencies have come under fire because of excess energy consumption. Socially responsible investors point to the environmental consequences of digital currencies as reason enough to avoid investment. The pushback from the SRI community and environmental activists led former Bitcoin enthusiast, Elon Musk, to drop the acceptance of cryptocurrency at Tesla, resulting in a significant drop in Bitcoin’s price.
CRYPTOCURRENCY: VOLATILITY AND ABSENTMINDED MISTAKES
While cryptocurrencies, like Bitcoin, are considered secure because of a lack of a centralized system and complex algorithms and encryptions, the volatility of the market and the costs of simple mistakes mean they are a risky investment. An investor needs to look no further than Mt. Gox to understand how risky the investment is.
The prominent Japanese cryptocurrency exchange collapsed in 2014, with nearly 850,000 BTC lost. The CEO, Mark Karpeles, was accused of embezzlement and found guilty of records tampering, resulting in a two and a half year suspended sentence.
Roughly 250,000 BTC were later discovered in an old wallet, but many customers were left without any options. There is currently litigation in the works that could see many creditors recovering some losses but not all.
The Mt. Gox Demise demonstrates the fragility of crypto investments. Still, even without fraud and mistakes like misplacing a wallet, crypto is highly volatile, as witnessed by the Tesla suspension.
GOLD: THE DEPENDABLE STANDBY
Because gold is a tangible asset, it makes investors more comfortable. Additionally, the mainstream investment has a long-standing history, millennia, in fact.
It is a trusted commodity, garnering the faith of individual investors and central banks. For centuries, governments have depended on the asset to encourage economic growth and stability.
While gold’s value has fluctuated over the years and doesn’t generate the same gains as crypto, it is a less volatile and more predictable investment opportunity. Therefore, despite the current hype around cryptocurrencies and discussions speculating such digital trends as overtaking gold commodities in the future, most financial experts believe the mineral will outlast its crypto counterparts.
As far as which investment presents the best opportunity for you and your wealth, that depends on your comfort level with risk. Gold is more stable and, in many ways, more secure than cryptocurrency, but it does not offer the same potential for short-term gains.
What do you think?