Non-traditional assets are an important part of portfolio diversification. Especially during periods of economic or political turmoil, investmenting in the classic money market feels riskier. This drives many investors to look for alternative places to store their wealth and invest.
In the modern era, investors have a number of different options. Traditionally, financial advisors recommended gold and other precious metals as a way to diversify portfolios and avoid the pitfalls of a bear market or recession. But gold isn’t the only option. With the advent of digital currencies like Bitcoin and Ethereum, an entirely new class of non-traditional investment options has appeared.
As cryptocurrency continues to take the investment world by storm, it’s important that investors take some time to weigh their options. While cryptocurrencies like Bitcoin offer the potential for massive gains, they also confront investors with a drastically increased risk profile.
Which is the better investment: cryptocurrency or precious metals? We’ll start our analysis with the things that these two investment classes have in common. First, both bullion and digital currencies are considered non-traditional investments. Unlike stocks and bonds, these investments don’t directly positively correlate with traditional market indicators.
Additionally, these investments tend to be more popular during times of economic turmoil or uncertainty. When investors are confronted with rabid inflation, the looming threat of trade war, or the specter of recession, they often look for non-traditional markets to protect their livelihood. Both precious metals and cryptocurrencies fall into this category.
But there are also a few important differences between these two non-correlated assets that investors should consider.
Perhaps the most important advantage to investing in precious metals is their inherent value. Unlike some cryptocurrencies saddled with exceptionally high circulation numbers, precious metals are always in short supply. Because gold, silver, and other precious metals are naturally limited in quantity, they have inherent, intrinsic value.
Gold will never go to zero dollars. Because it offers both utility and intrinsic value due to its rarity, precious metals like gold have a floor – unlike most cryptocurrencies. For investors who want to keep their funds safe during uncertain times, this might be enough to make precious metals a better choice than cryptocurrencies.
While not all investors buy physical gold, the opportunity to take physical possession of their investment is part of the appeal offered by precious metals. In the age of sophisticated hacking and phishing operations, cryptocurrencies carry inherent risk that precious metals do not. It’s always possible that your gold bars might be stolen out of your home safe, but historical evidence suggests that storing cryptocurrencies on untested, unsecured servers is a recipe for financial disaster.
Finally, investors should know that the historical value of gold and other precious metals has been proven over the course of hundreds of years. While it’s certainly true that cryptocurrencies have taken the investment world by storm and offer an entirely new way to invest, there’s just not enough evidence to convincingly argue that these alternative currencies will remain profitable investment vehicles in the future.
Ultimately, the choice between bullion and bitcoin is one that comes down to consumer preference. While gold offers a more stable, safe history of value appreciation, investors might see a quicker, heftier return on a well-timed cryptocurrency investment.