How cryptocurrencies can replace gold

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The coronavirus epidemic that has suddenly swept the world has shown investors that no asset can be fully protected. Together with the stock market, oil, fiat and cryptocurrencies were also hit. In the fight against the pandemic, only gold won, which strengthened in price and proved to be the most protected asset. However, the head of the data analysis department of CEX.IO Broker Yuri Mazur believes that in the future cryptocurrencies can partially replace the precious metal.

Features of course changes

On March 3, 2020, the price of an ounce of gold was $ 1,585, and by the end of the month, the price of the precious metal had risen to $ 1,673. Gold traded at $ 1,695 on May 27. In two months, its rate has grown by almost 10%, while all other assets, on the contrary, have significantly sagged..

It’s no secret that bitcoin also showed significant changes, having lost more than half of its value in a couple of days: from $ 9130 (on March 8) to $ 3800 (on March 12). Of course, there were several reasons for the collapse: the collapse of the S index&P 500, with which the BTC showed a clear correlation, speculations of individual market participants, large injections from “whales” and the other along with the general widespread unrest. But cryptocurrencies, unlike other assets, tend to quickly recover in value. At the time of publication, bitcoin is trading in the region of $ 9,550 and is likely to continue to grow..

Gold storage at risk

Recently it became known that the governments of several countries are discussing the possibility of introducing a ban on the storage of gold. This, of course, can negatively affect the market, since investors will be deprived of a proven defensive asset, which is less susceptible to inflation, financial crises, etc. At the same time, from the point of view of investment, there is a significant difference between gold and cryptocurrency: gold is not a profitable asset, it does not generate profit. The precious metal only protects the investor’s money from inflation or collapse. 

For example, in 2009, the cost of an ounce of gold was $ 1337, and the bitcoin rate – $ 1 for 1309 BTC. In 2017, the price of the precious metal dropped to $ 1,150, while the BTC jumped to $ 16,300. The price of gold has never risen more than 20% of last year’s figure, and the BTC could make a breakthrough of 50-70% in a few weeks or even days. Therefore, comparing these two assets, you need to understand that gold is a protective, savings asset, and cryptocurrency – investment, which generates profit for its owner.

Choosing between saving and earning

According to the expert, in terms of protecting investor funds, Bitcoin is unlikely to become a full-fledged replacement for gold due to its nature. Cryptocurrencies are still a volatile instrument and no one can accurately predict their behavior. The same cannot be said about the behavior of gold, which is quite predictable: at the time of crises, its value goes up to the level of $ 1690 – $ 1695, and then drops by 10-15%. 

How cryptocurrencies can replace gold

It is easy to trace this over time. The 2008 crisis was one of the most devastating. Against the backdrop of a fall in all markets, gold rose by almost 40%: from $ 620 to $ 1000, and then rolled back. A similar situation is currently observed and when the impact of the financial crisis weakened, its price will fall again..

However, cryptocurrencies can easily replace gold in terms of profit generation. Bitcoin is capable of generating profits, both in the short and long term. 

«It all depends on which strategy you choose. But in terms of investment, I would still be more focused on long-term investments.», – says Yuri Mazur.

For example, last year the audit and consulting network FinExpertiza called bitcoin the most profitable asset: for every ruble invested in MTC, the coin generated almost 2 rubles of profit. That is, if we take for the calculation the amount of 300,000 rubles. and invest in military-technical cooperation, the investor could earn 237,047 rubles last year. If for the same 300 thousand rubles. buy gold, then at the end of the year the investor would have received a loss of 24,556 rubles.

Can Bitcoin replace gold??

Precious metals do not make money, they only protect finances from inflation or losses during a market storm. Cryptocurrencies do not guarantee the preservation of value, due to the high volatility, but they are able to generate profits 2-3 times higher than the initial deposit. In the current realities, MTC will not be able to completely replace gold, like gold. – cryptocurrencies, as these instruments have different purposes.

If governments nevertheless decide to confiscate gold and ban the purchase of precious metals by individuals and legal entities, then investor portfolios are likely to be revised, and stablecoins, which are pegged to a specific currency or a basket of currencies, may take the lion’s share in them. In this case, cryptocurrencies can really become an alternative to gold and save the value of investments..

text: Yuri Mazur, Head of Data Analysis Department, CEX.IO Broker

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