Should you buy gold or bitcoin?

Fully backed physical gold on a blockchain.
Image: Supplied

When billionaire investors like Ray Dalio and Stanley Druckenmiller start buying gold, it is time to start paying attention.

Druckenmiller reportedly holds 20% of his portfolio in gold as a hedge against inflation, and Dalio’s hedge fund invested more than $400 million in gold in the second quarter of 2020.

Gold’s status as a safe haven in times of turmoil remains undiminished. It recently rallied to an all time high of $2,070/oz before pulling back to $1,900/oz as investors scurried for safety due to massive central bank money-printing in response to the Covid-19 lockdowns.

Hedging against market uncertainty with gold is what conventional wisdom would dictate as a safe-haven approach and historically this has proved to be a successful strategy. But the old-school safe haven of gold is being challenged by a newer digital alternative: bitcoin.

Bitcoin’s correlation to gold has tightened in recent months – a sign that it’s a possible alternative, or complement, to investing in the precious metal. Both have proved helpful to investors, and both have been harnessed as a speculative investment at some points and a safe-haven asset at others.

And when big-name institutions including trillion-dollar asset manager Fidelity, Nasdaq-listed MicroStrategy and payment giants Square and Paypal make moves that involve buying, holding and accepting bitcoin, investors should also start to pay attention.

This increased interest by the ‘smart money’ has driven an 80% surge in bitcoin prices since the start of the year, relative to the 29% jump in the gold price.

Sean Sanders, CEO and founder of Revix (backed by JSE-listed Sabvest), explains: “Returns and price volatility aside, bitcoin and gold have important differences. These range from something as simple as tenure, or how long each has been around, to the very nature of these assets themselves.

“At Revix, we believe it’s incredibly important to diversify an investment portfolio across asset classes and geographies. We enable our customers to buy and sell both bitcoin and Pax Gold, which is a gold token that is 1:1 backed by physical gold.”

Bitcoin vs gold – the key differences

Digital vs physical

One of the most striking differences between gold and bitcoin is that while the precious metal represents a physical object, bitcoin is entirely digital.

Circulating supply and growth

The current and maximum supply of bitcoin is known. More specifically, the bitcoin network caps the total number of digital coins at 21 million, and to date, only 18.5 million have been mined. No-one really knows how much gold lies above ground, though its supply is also limited.

Trading history

Gold has a far longer track record than bitcoin, as it was first used thousands of years ago. Bitcoin, on the other hand, has only been in existence since the first block was mined in January 2009.

While bitcoin’s returns surpass that of gold over the majority of comparable time periods, its volatility accentuates its risk. For traders, volatility is what makes bitcoin exciting, with potential for large gains and equally large losses.

Classification

Another key difference between the two is that while gold is a commodity, classifying bitcoin has proven to be a bit more elusive. Many argue that bitcoin belongs to its own asset class, pointing to several variables such as the low correlation between bitcoin and other asset classes.

Volatility

Bitcoin is far more volatile than gold, though this is an inevitable consequence of its relative immaturity. Over time, that volatility is expected to reduce as it grows. Gold is not immune to this volatility, however, it is less pronounced than that of bitcoin.

Portability

Bitcoin is considerably more portable than physical gold, making it cheaper to store, transport and transfer. Both gold and bitcoin have very liquid markets where they can be purchased using fiat money such as rands.

Key similarities

Alternative status

Gold and bitcoin have both been identified as alternative assets and safe-haven assets. While gold has long been identified in this way, bitcoin has more recently become something that investors flock to in times of distress.

Non-sovereign

Neither asset is distributed by a central bank or federal government and so bitcoin is created and earned in a similar way to gold.

Valuation

Bitcoin and gold are also both speculative investments. Unlike stocks and bonds, they are not based on factors like earnings and interest payments. As for what drives their price movements, the answer is complicated, but it’s ultimately driven by supply and demand.

So is bitcoin a better investment than gold?

“You cannot really choose one over the other,” says Sanders. “They’re similar in some areas and different in others. At Revix, we believe that the future is changing and your investment portfolio should too. However, the old school rules of investing remain the same.

“Investors should build a diversified portfolio and not try to time the market. We believe most people would benefit from holding a small portion of both gold and bitcoin in their portfolio but this also depends on the investor’s individual circumstances.”

Revix introduced Pax Gold (PAXG) in early 2020, allowing investors to purchase and own gold tokens which represent legal fractional ownership of physical gold bars held in London Brinks vaults without having to store, manage or secure the precious metal.

“PAXG tokens remove the hassle from investing in gold, giving it all the security, effortless storage and transferability benefits of bitcoin. In our continued effort to give our customers exposure to cutting edge financial products, we felt that PAXG was a no-brainer in that it provides customers with a secure, simple way to invest in gold without the drawbacks seen in traditional gold investment funds,” says Sanders.

Whether bitcoin beats gold as a safe-haven asset is a debate that will likely rage for years to come. Both have something to offer investors.

The good news is that both can safely be purchased through Revix on a single platform. The benefit of both bitcoin and PAXG is that they are infinitely divisible – meaning you can get exposure to both bitcoin and gold for as little as R500.

Key differences between physical gold, Bitcoin and PAXG

Source: Revix

What else does Revix offer?

Revix also offers three crypto ‘bundles’ which are like the S&P 500 for crypto, where investors gain diversified exposure to the top-performing crypto assets in just a few clicks.

The Top 10 Bundle provides equally-weighted exposure to the top 10 cryptocurrencies making up more than 85% of the crypto market.

The Payment Bundle provides equally-weighted exposure to the top five payment-focused cryptocurrencies, including bitcoin, XRP and Litecoin. These cryptos aim to make payments cheaper, faster and more global and are aimed at those who believe making payments with cryptos will become as easy as sending an email.

The Smart Contract Bundle provides equally-weighted exposure to the top five crypto-currencies built around ‘smart contracts’ and includes the likes of Ethereum, EOS and Tron. Smart contract cryptocurrencies sit on the blockchain rather like mobile apps rest on the Android or Apple iOS system. These cryptocurrencies aim to revolutionise how supply chains and trading networks operate through smart contracts. This is Revix’s top-performing bundle as it has benefited from the explosive growth in the decentralised finance (or DeFi) space in 2020.

Brought to you by Revix.

For more information, visit Revix.

This article is intended for informational purposes only. The views expressed are not and should not be construed as investment advice or recommendations. This article is not an offer, nor the solicitation of an offer, to buy or sell any of the assets or securities mentioned herein. You should not invest more than you can afford to lose, and before investing please take into consideration your level of experience and investment objectives, and seek independent financial advice if necessary. 

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If crypto currency value is linked to gold and US$ , better rather to invest in Gold straight off?
I still get the feeling that Crypto currencies are for those trying to hide their assets for various reasons – fraud, money laundering, tax evasion etc….. secrecy does not inspire confidence in my opinion.

Wall Street owns over $10.2bn in Crypto; I doubt very much this is for “fraud, money laundering, tax evasion etc”. Bitcoin requires a fiat onramp and offramp, so is by no means secret.

Bitcoin is not coupled to stock market, US$ or gold. PAXG & V999 are secured by gold. With tokens in gold, you can send it anywhere in the world in 5 minutes and redeem it for physical gold at the other end; much more convenient than attempting to carry kilos of gold onto a flight.

The Great Reset, in its manifesto see’s crypto’s as the future currencies. Whether its Bitcoin set as the new global currency standard or other, the one thing that sets Bitcoin aside from central banks is the fact that governments cannot track a persons purchasing habits

Each country is at a rush to launch their own; this will eventually leash unimaginable data collected on nations individuals

I highly recommend listening to Raoul Pal if you want to understand bitcoin from a traditional macro perspective. Seasoned investor. He had the same concerns. Here’s a snippet that might help: https://youtu.be/h26XlPjycT4

Raoul Pal (@RaoulGMI)

“Bitcoin’s performance is SO dominant and SO all-encompassing that it is going to suck in every single asset narrative dry and spit it out.

Never before in my career have I seen a trade so dominant that holding any other assets makes almost no sense.”

Not true. I invested a fairly large portion in bitcoin. My motivation is not money laundering, fraud, etc, but simply an alternative investment, which potential I do believe. Risky? Potentially yes. Large returns? Potentially to likely yes. Big losses? Maybe. Based on this I think the odd seems good.
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End of comments.

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