For what purposes are better investments in gold, and for which - in cryptocurrency?
Is it possible to compare gold and bitcoin?
Despite the fact that some analysts have suggested that bitcoin can replace gold, most experts from both camps - cryptoskeptics and crypto enthusiasts - agree that it is incorrect to compare these two assets.
If you compare the fish and the bird on the ability to breathe under water, the fish will win. If the ability to fly - a bird. With assets, the situation is similar.
At the best of times, the daily volume of transactions with Bitcoin reached two billion dollars. This can be compared with the daily trading volume of gold funds on the stock exchange, but still it is less than 1% of the total value of the gold market, which makes $ 250 billion in transactions a day.
The advantage of gold is stability. The advantage of cryptocurrency, including Bitcoin, is volatility. These indicators are by definition opposite to each other, no single asset can be simultaneously stable and volatile. And at the same time, a competent investor is able to benefit from one and the other.
Volatility as a source of profit
As can be seen from the graph above, over the past year, the price of gold remained within $ 1225- $ 1350 per troy ounce. That is, if you bought a troy ounce during this year, when it cost the least, and successfully sold when it was at the peak of the price, your profit would be about $ 100, that is, about 8% of the initial investment in the asset. At the same time, the price of bitcoin varied over the year from approximately $ 1000 per token to almost $ 20 000. That is, buying Bitcoin at the beginning of 2017 of the year and selling in December, when it was at its peak, you would get a profit of the order of 2000%.
This is the essence of volatility. The sharper the price jumps this or that asset makes, the more a speculator can earn on it.
At the same time, it is worth noting that there are mechanisms for earning money and falling assets. The basic of these mechanisms is the so-called “short sale”. Most often, this operation is performed under the conditions of margin trading, that is, the trader buys from the broker the right to sell the asset owned by the broker. For example, the X token currently costs 100 conventional units, but the trader predicts an imminent collapse of the cryptocurrency to 10 conventional units. He buys for 1 conventional unit the right to sell 1 token X with a guarantee of returning the token X back to the trader in a month. It is important to note that the trader does not buy the X token itself, but the right to sell it. Actually, that is why he is obliged to return it back in a month. It resembles a loan, only interest is paid immediately, and the debt is returned in the same asset in which it was borrowed (and this is not always money, margin trading is possible with any asset).
A trader sells token X for 100 conventional units. His forecast comes true, the price of the token falls. A month later, he buys a token X for 10 conventional units and returns to the broker. As a result, the trader makes money on the fall of the 89 price of conventional units (1 he pays the broker for the opportunity to carry out this speculation, 100 receives from the sale of the token and 10 spends to buy the token back). Due to this, an experienced trader can make money on any change in the course, as long as the price difference is higher than the cost of the broker's services. Well, in order for the trader’s forecast to come true - otherwise in the example described above, if the token had not fallen in price, but instead increased tenfold, then the trader would have suffered a loss in 901 conventional unit (1 he would pay the broker for his services, 100 conventional units will help out with the sale and he will have to spend 1000 to buy a token back).
Thus, highly volatile assets are risky, since if a trader does not guess the trend, his losses will be huge. But at the same time, such assets have greater potential for profitability. Because in the case of, for example, with gold, the fluctuations in the prices for which during the year were within 8%, it is impossible to extract profit at the expense of speculation more than these same 8%.
Gold stability
But to save money, gold is much better suited. As can be seen on the graphs above, the most serious fall in the price of an ounce of gold was within 50 dollars, that is, by about 4% over a couple of months. Bitcoin at the beginning of this year for the month fell in more than two times. 7 January, it cost 17 527,30 dollars, and 8 February - 7637,86.
That is, if a trader wants to invest in an asset not in order to make money on speculation, but simply looking for a way to protect his savings from fiat currency inflation, then he should choose gold, not bitcoin. Even if it starts to fall in price, it will do it very slowly, and you can have time to sell it before the losses result in a serious amount. However, getting rich quickly on these investments will not work anyway.
At the same time, in Bitcoin, and other cryptocurrencies, the situation is exactly the opposite. If an investor does not plan to actively play on the stock exchange, following price charts and using complex trend prediction mechanisms, then investing in cryptocurrency will be very risky for him. As the dynamics of Bitcoin shows, you can get rich twenty times in a few months in order to suffer double losses in just a month.
Thus, it is incorrect to say that gold or bitcoin is better. The answer to this question depends solely on the purpose for which you plan to use an asset.