Gold and cryptocurrencies: one is a precious metal which holds great intrinsic value, believed to have been forged in the heart of exploding stars millions of years ago. The other is a disruptive asset relying on blockchain technology, which has created and destroyed fortunes for many over the last decade.
While gold and cryptocurrencies like Bitcoin might not seem to have much in common, movements in the value of one affect the other, and when one suffers, money can flow into the other. Cryptocurrencies remain very much in their infancy relative to things like gold, which have been known to be a safe haven and a store of wealth for generations.
Bitcoin and its fellow cryptocurrencies have been experiencing high volatility lately, reducing their attractiveness. Gold, by comparison, is more slow-moving and could benefit from this state of affairs.
Crypto - the ups and downs
Price rallies can be exciting times for anyone pouring their wealth into anything that can be bought or sold on the open market, whether that’s a share, a house, bonds, commodities or cryptocurrencies. Some are more volatile than others, so they can enjoy sudden and unexpected lurches to new highs, but also experience nasty losses in value. Fortunes can be won or lost in a few short days, and can create a sense of insecurity if your money is at risk of going up in smoke, unless you time the markets right.
Bitcoin offers more than one example of how cryptocurrencies can be prone to bubbles. Since 2011, the cryptocurrency has experienced at least three major price bubbles, peaking in 2013, 2017 and 2021 respectively. Unfolding over distinctive four-year cycles, prices started low before rising steadily and experiencing a short-lived surge in the final months before a two-year long collapse in value.
If you are in a position to enter the cryptocurrency market to make the most of the rallies, you could make some impressive gains. However, as is often the case, much of the investment in Bitcoin tends to arrive just as the bubble reaches its peak. The consequence is that many find themselves actually making losses after the peak, and attempts to cut losses simply cause prices to fall even further.
Bitcoin soared from $230 in 2015 to $65,000 by 2020, but has collapsed to barely $34,000 in recent weeks. By contrast, gold has enjoyed a less bumpy ascendance, with gold prices rising in value from £750 to £1,300 per troy ounce between 2015-20 - an effective doubling up without the sudden lurch downwards. While those who hedged their bets with cryptocurrency in recent years are feeling the pinch somewhat, those with a bit of gold will be feeling more assured they made the right choice.
Gold as an alternative to crypto
When putting your money into cryptocurrencies, it’s less of a currency per se, but more of an investment such as stocks. Each Bitcoin has such a volatile price that it loses value as a stable means of exchange, but more of a way to turn a profit if you buy during a price rally. There are many cryptocurrencies to choose from - Bitcoin, Ripple, Ethereum - but gold is as simple as they come. One metal, with that characteristic glittering quality and the ability to avoid corroding over time.
Generations have seen the intrinsic value of keeping some gold to hand, knowing it was more valuable than many things in the world. When adjusted for inflation, you would have still found English people living in the Middle Ages putting the medieval price of gold somewhere above £1,000 per troy ounce, according to historical records. What this tells us is that gold has maintained a tremendous amount of value, despite almost a thousand years of wars, famines, epidemics and economic crises.
Cryptocurrencies are too young for us to know what their intrinsic value truly is. All we know from the single decade of their existence is that they are prone to remarkable highs and lows. Each crypto bubble leaves them worth that bit more than before, but the volatility makes them unpredictable over short parcels of time. Gold, by contrast, has maintained or even gained value over time. As mentioned, Bitcoin has halved in value over just the last three months. Gold, on the other hand, has drifted somewhat lower since its last peak in summer 2020, but remained more or less stable in the last three months.
Gold only experiences volatility during the short periods in which prices are peaking, which typically happen after decade-long bull markets. Gold has only technically been in a bull market for five to six years, if you use 2015 as the last great low point. Assuming that gold is making a brief pitstop before resuming an upward trend and doubling in the next five years, we could see gold priced upwards of £2,600 per troy ounce by 2026.
In the coming years, we can be reasonably sure to expect the likes of Bitcoin to remain subject to more booms and busts, but gold is likely to offer a smoother way of protecting your wealth in the 2020s. Here at the Gold Bullion Company, we have a variety of gold bullion bars and coins which you can browse if you wish to make that switch from crypto into gold. While gold can be prone to downward wings and bear markets as much as any asset or investment, it is a precious metal with great intrinsic value, and demand remains strong, suggesting plenty of support for an imminent rise in prices.
If you wish to move into buying gold, give the Gold Bullion Company a call on 01902 623 259 today.
