Bitcoin vs gold: Which is safer to invest amid inflation

Highlights 

  • Bitcoin has again hit record-high levels, touching US $67000, with its price more than doubled in three months.
  • The Gold-backed ETF market is worth around US $201 billion.

Bitcoin has again hit record-high levels, touching US $67000, with its price more than doubled in three months. Amid rising inflation, investors have started talking about the potential of cryptocurrency to act as a better inflation hedge as compared to gold, after witnessing the extremely fast turnaround of bitcoin from July’s sub-US $30000 low.

Just like the Gold Bullion Securities launched the first tradeable gold-backed fund 20 years ago, the ProShares Bitcoin Strategy ETF has been launched in the US, which the aim of providing exposure to investors to deal in cryptocurrency without much of the associated risk.

According to the estimates of the World Gold Council, the gold-backed ETF market is worth around $201 billion, as holding ETFs is easier than holding gold bars. Unlike physical gold, ETFs can be conveniently held in your portfolio, pension or ISA.

Bitcoin vs gold Which is safer to invest amid inflation

Based on the prices observed in the current week, bitcoin is ahead of bullion in terms of keeping pace with the rising inflation levels, and thus it is being considered as a safer investment as of now. Last year, one bitcoin was worth 5 ounces of gold, which has now jumped up to worth 38 ounces of gold. On the other hand, a 6.1% fall has been witnessed in gold prices this year, going down to US $1,780 per ounce.

According to the head of investment analysis at AJ Bell, Laith Khalaf, the idea of investors getting access to bitcoin through ETFs is quite powerful. However, holding and buying crypto is already easy for retail investors. Bitcoin demand is expected to be positive but the issues due to which bitcoin crashed a few months ago still remain.

The idea of investors getting access to bitcoin through ETFs is quite powerful

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Is bitcoin better than gold?

As investors are becoming more aware about where their funds are being channelised, they are becoming more ESG-savvy and pulling back from bitcoin investments. In April, Elon Musk also pulled back from bitcoin due environmental concerns related to cryptocurrency mining. Crypto mining is basically the process of validating and then recording the new transactions on the blockchain by hashing them. It is a very expensive and resource intensive process and is prohibited across certain geographies. Even though mining supports the crypto ecosystem, it uses an enormous amount of electricity generated with fossil fuels, leading to speedy global warming. Environmentalists are openly taking a stand against crypto mining due to its huge intake of power and resources, making it even more difficult for the world to fight the menace of climate change by cutting carbon emissions. Companies thus won’t go for crypto payments if their green credentials are impacted due to it, as they won’t risk losing their investors.

In addition to environmental issues, crypto market is also dealing with arbitrary intervention by Governments and central banks across the globe, the recent example being China’s clampdown on crypto trading. The UK’s FCA has also banned retail investors from purchasing crypto derivatives and Exchange Traded Notes as the underlying asset is extremely volatile.

RELATED READ: The Effect of China’s Crypto Crackdown

Way forward

For better regulatory measures, various central banks are coming up with their own cryptocurrencies. The UK has also proposed the idea of BritCoin, central bank’s digital currency, after assessing its impact on the existing commercial banking system.

The crypto market is still in its nascent stage and has a long way to go for becoming mainstream. ProShares ETF’s launch is a positive step towards mainstreaming of bitcoin, but uncertainly regarding the future of crypto still remains. Unlike gold investments, money invested in crypto should be as per one’s risk appetite, and it should be treated as a speculative investment.

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