As anti-inflation assets, Bitcoin and gold can complement each other

In many aspects of life, we tend to use a zero-sum approach to make decisions. What is good for one side is definitely not good for the other side: I win on the positive side and you lose on the negative side; you either love dogs or cats; you are either a skater or a skier; you either prefer the aisle or the window Seats.

In many aspects of life, we tend to use a zero-sum approach to make decisions. What is good for one side is definitely not good for the other side: I win on the positive side and you lose on the negative side; you either love dogs or cats; you are either a skater or a skier; you either prefer the aisle or the window Seats.

But in today’s complex and multi-faceted investment field, nothing is so one-dimensional. The vast majority of decisions are actually non-zero-sum, especially if we consider the millions of billions of dollars in assets that make up the global capital market.

When talking about cryptocurrency and gold, a popular saying is that cryptocurrency has robbed gold of the limelight-the gain of cryptocurrency is the loss of gold. For the money you have, this urge to look at things either-or can be accompanied by a very expensive lesson. A prudent asset portfolio needs to consider obtaining the greatest return at the lowest level of volatility. Cryptocurrency, like gold, in the context of global uncertainty and approaching inflation, each tool plays a complementary role as a store of value.

It is estimated that the gold market is worth more than 11 trillion U.S. dollars, which reflects that as a globally recognized medium of transaction and value, gold has existed for 2500 years. In contrast, the market value of Bitcoin is about $1 trillion, and even the amount of physical gold held by many central banks and investors is equivalent to many times the current Bitcoin market. In 2020, the average daily trading volume of gold is US$125 billion, which is about 30 times the average daily trading volume of Bitcoin (approximately US$4 billion). Nevertheless, both of these assets have highly liquid markets, which means that both cryptocurrency and gold have undeniable sufficient room for development.

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Therefore, instead of treating Bitcoin and gold as competitors, it is better to treat Bitcoin as a legal inheritance or derivative of gold, which has certain characteristics in common with each other. Bitcoin has a low correlation with gold and other types of assets. They are all sensitive to inflation. They are a huge diversified investment tool and a substitute for legal bonds. Gold is a reliable, ancient, and safe means of storing value, while Bitcoin is a new generation that is growing and evolving. The market responds quickly, but it still lacks the wisdom that has survived as long as gold.

When investors in the United States join the trend of cryptocurrencies-this may give the impression that gold is out of date, while in other parts of the world, those who have long been accustomed to buying gold are just beginning to consider cryptocurrencies.

Investors should be cautious, investing in crypto assets at the wrong time may lead to rapid and severe losses. Anything that can appreciate at an unimaginable rate may face serious adjustments. Nothing is absolutely reliable. Although crypto assets are popular in North America and some other countries, they are actually banned or unpopular in many countries.

As a believer in gold and crypto assets (especially distributed finance), I can foresee that in the North American market, gold will return to a high of $2,200 per ounce. This does not prevent investors from diversifying their investments in other asset classes such as cryptocurrencies. The signs of inflation have already appeared, far beyond what the federal government wants you to believe. As the government continues to print money, inflation will continue to rise. This means that the prices of gold, Bitcoin, Ethereum and key distributed financial assets (DeFi) will all benefit.

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Peter Schiff, former chief economist and strategist at Euro Pacific Capital, believes that investing in cryptocurrencies is reckless. In my opinion, this view is flawed. There is no doubt that the value of anything lies in what people are willing to pay for it. The fate of any currency, whether it is digital currency or other currencies, is in the hands of financial institutions and credit card companies that realize its relevance.

With the development of distributed financial protocols based on Ethereum and Bitcoin, one cannot say that these digital entities have no value. Driven by distributed finance, the value of cryptocurrency can be comparable to the value of all traditional financial markets.

Investment psychology shows that rational and rational behaviors almost never coincide. One might think that Bitcoin is worthless, but it is not. There are some very savvy institutional investors and savvy legendary macro investors who believe that crypto assets are the future trend because it is creating a crypto economy that can operate without government monopoly.

Think of it as Facebook 2.0 or Email 2.0-back in the mid-1990s, Email (and Facebook, of course) almost didn’t exist. E-mail is an emerging novelty, and few people appreciate it; no one expects e-mail to be legal tender, and no one believes that the Internet is safe. However, look at where we are now. Things changed before we knew it, which led people to believe that cryptocurrencies and distributed financial protocols will continue to exist.

The benefits of cryptocurrency, distributed finance, and blockchain technology are huge, including “know your customer” (KYC), eliminating terrorist financing, or eliminating criminal proceeds. These effects cannot be underestimated. These agreements have significant advantages over gold. Gold is untraceable. Some people still believe that Nazi gold is hidden in vaults all over the world.

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If we foresee a place for gold and cryptocurrencies in the future, then over time, I expect them to be interconnected. This is a talk of past experience. If Bitcoin can reach $80,000 to $100,000 in the short to medium term, and gold can reach $3,500 to $5,000 per ounce, then people are likely to invest in both assets at the same time. The value of distributed financial protocols developed on Ethereum/Bitcoin and other blockchains may be tens of thousands of times higher.

Therefore, cryptocurrency is unlikely to replace gold. They are two sides of the same coin, and each side can benefit from the experience and perspective of the other.

Author/ Translator: Jamie Kim
Bio: Jamie Kim is a technology journalist. Raised in Hong Kong and always vocal at heart. She aims to share her expertise with the readers at Kim is a Bitcoin maximalist who believes with unwavering conviction that Bitcoin is the only cryptocurrency – in fact, currency – worth caring about.