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"In the past few years, two factions have engaged in fierce debates on alternative financial media websites. One side embraces cryptocurrencies and believes that even during turbulent financial times, cryptocurrencies can maintain their asset value. The other side firmly believes that only precious metals can shoulder this ""responsibility.""
In reality, cryptocurrencies and precious metals complement each other, and, therefore, a comprehensive crisis portfolio should include both cryptocurrencies and precious metals.
Gold and silver have served as safe havens for funds for thousands of years, and no other asset can match them. However, in recent years, Bitcoin has gradually made a profound impression on people.
In 2013, Cyprus experienced a deposit tax and bankruptcy crisis due to the European debt crisis. In 2014, Russia faced an economic crisis due to the sharp decline of the ruble. In 2015, Greece had a sovereign debt crisis. In early 2016, China imposed capital controls. During the financial crises mentioned above, the prices of Bitcoin were on the rise. Similar phenomena occurred during the Brexit referendum in the summer of 2016 and when India demonetized 500 and 1,000 rupee notes.
Ongoing capital controls in China and overall uncertainty contribute to the recent upswing in Bitcoin. While Bitcoin may not be a true safe haven for funds due to these short-term correlations, it does show that funds flow into the cryptocurrency market during financial crises, a trend that is likely to continue.
According to Coinmarketcap data (as of the publication date of this article), the total market capitalization of cryptocurrencies is approximately $340 billion, which is less than one percent of the value of the precious metals market. Precious metals' market value is about two percent of the total global bond market. In other words, the cryptocurrency market is still relatively small, so it retains significant growth potential.
What about precious metals? In recent years, gold and silver investors have experienced relatively low returns on their assets compared to cryptocurrency investors, who have seen significant returns. Currently, Bitcoin and other cryptocurrencies are limited by the absence of futures trading, a favored tool among precious metals investors.
This doesn't mean that precious metals have no place in the market. There are many advantages to owning assets without counterparty risk, like the fact that you can maintain your ownership.
Precious metals investors who criticize cryptocurrencies should realize that they have a significant advantage in investing in cryptocurrencies compared to those who don't own gold or silver. If the value of cryptocurrencies is severely affected or removed from the market due to unforeseen events, the demand for hedge assets will shift elsewhere.
If the argument that cryptocurrencies are suitable as a safe haven for funds is questioned, the beneficiaries may be precious metal assets. Therefore, precious metals naturally become a hedge against the concerns and risks of many cryptocurrencies.
Regulatory Impact
The most recent event affecting the cryptocurrency market happened in China when the Chinese government implemented regulations for cryptocurrency trading, resulting in the freezing of numerous Bitcoin accounts. As shown in the chart below, this strong government intervention led to a significant negative response in Bitcoin prices. Interestingly, gold prices simultaneously exhibited the opposite trend.
Precious metals and cryptocurrencies may benefit from the flaws of debt-based currency systems. Still, owning one asset should not prevent anyone from investing in other assets. Precious metals and cryptocurrencies should be partners in a diversified portfolio. Cryptocurrencies have tremendous return potential, while gold and silver, as traditional hedges, can guard against unexpected outcomes." |
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Post time 2-11-2023 21:18:14