Gold, a more liquid and less volatile than cryptocurrencies

The massive revaluation of cryptocurrencies during 2020 has led many investors to buy them. They often preferred crypto assets to gold. However, the precious metal is an asset with greater liquidity and much less volatile than cryptocurrencies.

In recent months there have been comparisons between cryptocurrencies and gold. They asserted that crypto assets had displaced the metal as the ideal safe-haven asset.

The World Gold Council has just published a new report in which they compare both assets and expose their advantages and disadvantages.

This analysis’s conclusions lean in favor of gold, a tangible asset with unique dual nature, both as an investment and as a consumer good.

Besides, gold has an advantage over cryptocurrencies in liquidity. It is less volatile, constitutes a long-term strategic investment, and can mitigate the risks that cryptocurrencies can generate in the investment portfolio.

Indeed, bitcoin has been three times more volatile than the S&P 500 or the Nasdaq of the New York Stock Exchange in the last two years, and more than 4.5 times more volatile than gold.

According to the report, the idea that gold and cryptocurrencies can be comparable comes from the fact that both assets have a limited supply and are alternatives to fiat currencies.

The report highlights that the dual nature of gold is a notable advantage for the precious metal. It distinguishes it from other assets and allows it to perform well in times of economic instability.

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The report stresses that cryptocurrencies are digital assets with a single source of demand, which is an investment.

Hence the enormous volatility and the price registered by bitcoin are more linked to speculative investment than strategic positioning.

Supplies of both assets are low

One of the most recurring similarities between gold and cryptocurrencies is their scarcity. The gold accumulated stocks rose by 1.7% in 2020, a rate that has not changed much in the last 20 years.

The stock of bitcoin is growing at an annual rate of close to 3% and is designed to gradually decline to zero growth by 2140.

Although both gold and bitcoin are finite, the latter has a predetermined minimum of stock units that can be an advantage. However, the relevance of gold is based on a combination of physical and chemical properties and an excellent balance between availability and scarcity, the report notes.

Although gold competes with other precious metals such as silver, platinum, or palladium, it remains the preferred asset as a monetary reference. It has been an important component of the strategic reserves of central banks for many years.