Comparing Bitcoin and Gold

Bitcoin is one of the newest asset classes available to those who might invest in it. While it’s certainly grown to the point that it’s here to stay, many are still kind of confused about it. In an attempt to either understand, explain, or both, many compare Bitcoin to gold. Whether or not this is accurate is certainly a matter of debate. While both are very different mediums of exchange, there are in fact some notable similarities to them.

Two things make many people think Bitcoin and gold are somewhat similar. First of all, the current explosion of cryptocurrency strongly resembles the physical gold rushes of the past. Secondly, both gold and Bitcoin represent what many consider useful asset classes to invest in but only minimally.

Financial advisors that help people plan out their investments still advocate strongly for diversification, which means a lot of stocks and some bonds holding the majority of a portfolio’s holdings. Even many gold advocates suggest putting between 5 to 15 percent of a portfolio into precious metals. Likewise, investing in cryptocurrency isn’t a fringe thing anymore, but it should be kept low in terms of overall portfolio exposure. You want just enough to capture gains from the obvious explosion, but the volatility needs to be hedged against.

One very notable difference between gold and Bitcoin is the very nature of their asset class. Bitcoin is a cryptocurrency, which means it’s a digital asset. Gold, on the other hand, is very much a physical asset. Even though many gold investors might never actually see the bars and bullion they invest in, they do exist and are safely stored away in approved vaults around the world. Bitcoin is also very secure, as that is the whole intention of cryptocurrency technology, but you will never touch a Bitcoin with your own hands.

Another difference between the two is how closely they mimic the actions of stock markets. Cryptocurrency was its own thing for a while, but as it has gained mainstream acceptance more widely, it has actually started mirroring the up and down movements of major stock indexes. Gold still carries a reputation of doing well when everything else falls down, which is why it appeals to investors as a counterpoint to market volatility and inflation.

This article was originally published on BoPolny.com

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