What is your choice?
A traditional hedge against stock market volatility is gold. But in the last few years, many have argued that digital currencies can fulfill the same role, even going so far as to label bitcoin “digital gold”. Both seem to be largely detached from the ups and downs of the stock market, are readily available, and are unaffected by movements in fiat currency.
The history of the two assets is a stark contrast. Gold has been a store of value for at least five millennia. The first digital currency, bitcoin, only came into existence in 2009 and has only been taken seriously by most investors for a couple of years.
One of the main hurdles for cryptocurrencies, as opposed to gold, is legitimacy due to a lack of intrinsic value. Gold is a rare metal traded and valued for centuries and is also of practical use in various industries as well as in jewelry. Digital currencies have no inherent value as they are computer-made. The surge in popularity of alt-currencies and the increasing number of places they can be used, such as PayPal or buying a Tesla car, have given them some legitimacy. However, many financial experts remain cautious.
The usability of cryptocurrencies does give it an advantage as an alternative currency. While both assets are incredibly liquid and easy to trade, it is easier to buy something or transfer wealth using a digital currency than with gold. This is a good argument for owning some cryptocurrency but doesn’t necessarily mean it deserves a permanent place in an investment portfolio.
For money to be good money, it needs to be a store of value. To be a good store of value, money needs stability. Bitcoin may prove to be an excellent speculative investment in an inflationary asset bubble, but, so long as its roller-coaster volatility continues, it will not be money. Neither humans nor investments can truly prove their worth until they’ve suffered through traumatic crises and come out the better for them. All financial assets are overvalued at this moment.
At some point, we will have a dramatic and most likely painful correction in stocks and other financial asset classes. It may only be at that stage when gold finally glitters and bitcoin has the real test of its mettle.
On social media, Elon Musk tweeted Tesla will stop accepting Bitcoin for car purchases (because of environmental concerns), Mark Zuckerberg posted a picture mention with bitcoin on his Facebook. And last Monday, Gold prices touched their highest in over three months.
Which one is the best hedge against inflation these days?