Are Cryptocurrency and Gold Similar Investments?

Investors have turned to both gold and cryptocurrency as alternative investments meant to keep their money safe. But how does crypto compare to gold? What are the advantages and disadvantages of these currencies, and should an investor consider one over the other?

The Many Types of Crypto

First, let’s establish that there are many different types of cryptocurrency. There are thousands of various active cryptocurrency projects, with newly-created ones emerging all the time. A handful of significant players acquired global recognition as effective currencies, but there are also hundreds of projects that have barely seen the light of day.

Because of this, it’s challenging to pool all cryptocurrencies together in the same category. Some cryptos are riskier and less liquid than others. Some have much more aggressive growth potential than others. You’ll need to keep this in mind when we discuss some of our points on how crypto compares to gold; some of the advantages of crypto simply won’t apply to all cryptocurrencies.

It’s also important to note that we’re looking at gold, specifically, but for the most part, gold functions similarly to other precious metals, like silver.

Similarities Between Crypto and Gold

What are the similarities between cryptocurrency and gold?

Price fluctuations.

Cryptocurrency and gold both fluctuate in price over time. You can look up the spot price of gold any time you want to know how gold is performing in the current market, and you can track cryptocurrency prices whenever you want. Of course, the prices of both asset classes fluctuate for various reasons.

Gold may rise in price because of market volatility or reports of newfound scarcity. On the other hand, crypto may increase in price because a social media influencer may have recommended it; or because it hit a milestone number of users. It’s notoriously difficult to make predictions about price fluctuations of either investment.

Finite nature.

Gold investors often turn to precious metals because they know that precious metals are finite. Currency tends to get its value from its natural limited supply. If there were literal money trees in our backyards, where we could always gather as much money as we wanted, the value of money would plummet to nothing.

Similarly, if the Federal Reserve relaxes the money supply too much, we end up in an inflationary environment where the value of money decreases. However, because gold and cryptocurrency (at least, most cryptocurrencies) are both fundamentally limited in nature, they tend to be more consistently valuable – and they serve as an excellent hedge against inflation.

Usability.

Gold and cryptocurrency are both acceptable forms of payment. However, most institutions accept cash more frequently than cryptocurrency or gold. But, you could hypothetically use either to make exchanges with other people.

Gold is more traditional, and has a better overall reputation, so that it might get a higher acceptance rate. However, an increasing number of individuals and organizations are growing to accept cryptocurrency as a method of payment.

Decentralization.

Cryptocurrency, as with any blockchain tool, is decentralized. It relies on a system of thousands, if not millions of users, to function, rather than the commands of a single director or board of directors. This blockchain system is also totally removed from all central banks and governments, allowing it to operate independently.

Gold can be considered decentralized similarly, since it can’t be directly controlled by a government.

Privacy and independence.

Both gold and cryptocurrency provide you with some degree of privacy, allowing you to partake in transactions without anyone tracking or controlling them. For example, no one can stop you from trading an ounce of gold with your neighbor, and no one can stop you from sending him cryptocurrency, provided you’re using the correct tools to do it.

Availability.

If you have access to a computer, you can choose to invest in gold or cryptocurrency at any time. Depending on the available tools, you may be able to create your own cryptocurrency wallet and start buying crypto directly. You could also invest in funds that track the performance of cryptocurrency assets.

Similarly, you can buy physical gold from various brokers online, or you could invest in a fund that tracks the performance of gold. So no matter how much experience you have or what resources are available to you, there’s a way for you to get involved with either asset.

How Gold and Crypto Are Different

Now how are cryptocurrency and gold different?

Regulation.

Though gold is considered a freely traded asset, it is highly regulated. It’s a relatively secure asset, since it’s almost impossible to forge, but it can be challenging to get ahold of physical gold and even more difficult to store it securely. On top of that, if you buy physical gold, you’ll be required to go through a licensed broker or dealer.

At least for now, Cryptocurrency has far fewer rules and regulations to follow. So naturally, this makes it more appealing in the eyes of some, since it’s more convenient to use.

Practical utility.

Gold has some practical utility. Because of its conductive properties and its malleability, it’s the perfect element to include in many technologies; in fact, there’s probably a significant amount of gold in the smartphone next to you and then whatever device you’re using to read this article.

Cryptocurrency doesn’t have the same practical value; it’s a digital token whose primary purpose is to function as currency.

Liquidity.

Gold is considered a highly liquid asset, meaning you can readily liquidate your gold stores if you ever want to sell them. The liquidity of cryptocurrency varies. With some of the bigger, household name coins, investors see high amounts of liquidity, being able to make transactions whenever they want. With smaller and newer coins, liquidity is minimal, making it difficult to close your positions.

Volatility.

Both gold and crypto have periods of volatility. However, gold tends to be a more stable asset because of its long history. People have had centuries to understand the value of gold, and we have detailed historical records of the price of gold to help us understand its fluctuations.

We don’t have any such information for cryptocurrency, and crypto is a much newer type of investment. Because of this, cryptocurrency tends to be highly volatile, especially in the early days of a new coin’s launch.

Public acceptance and recognition.

Almost everyone recognizes the value of gold. So even if you don’t like it as an investment option, you understand it’s a valuable and rare resource whose value will likely continue indefinitely. Unfortunately, cryptocurrency doesn’t have quite as much public support in this area – but its popularity is growing.

Which Investment Is Better?

Which is better as an investment: gold or cryptocurrency?

This is an impossible question to answer straightforwardly. To answer it, we would need to know which specific cryptocurrency we’re looking at, since each cryptocurrency will present its own strengths and weaknesses.

Even then, gold and cryptocurrency have different advantages and different disadvantages. The best fit for you will vary depending on your risk tolerance, your long-term goals, and the rest of your portfolio.

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