Gold or crypto: which is the best buy? | The Motley Fool

Don’t look now, but the Bitcoin (BTC -0.30%)-the digital gold argument returns. During the Crypto Market Crash, No One Wanted to Hear This Bitcoin was digital gold because the Bitcoin price was falling. But now that the worst of the crypto market selloff appears to be behind us, and Bitcoin price appears to have stabilized at around $20,000, traders are again talking about Bitcoin as a potential safe-haven asset.

Pour oil on the flame, Ethereum (ETH -0.82%) Co-founder Vitalik Buterin recently suggested on a Twitter thread that “crypto is the best bet” over gold. On the contrary, Buterin’s remarks push the argument a little further. It expands the network to include all cryptos, not just Bitcoins. And that suggests that crypto is, most likely, a superior investment to gold during a time of market uncertainty. Buterin right?

Three arguments in favor of crypto

Buterin broke down his argument into three succinct points. Two of them, quite frankly, don’t sound very convincing. For example, Buterin suggested that gold doesn’t support the same kinds of “safe storage options” that are available in the digital world. I don’t know about you, but gold seems pretty safe to me.

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Buterin also suggested that gold is “inconvenient” and “difficult to use” in business. That seems like a better argument because just about everyone can agree that pressing a button on your phone to send crypto anywhere in the world is much easier than lugging around a few gold bullion. gold to complete a transaction. But that doesn’t mean crypto is a better investment than gold.

The third argument, however, is the one that really got me. Buterin suggested that “gold has less adoption” than crypto. If you take a macro view of the situation, more people own crypto than physical gold, which gives it some security. Some 145 million US adults say they own cryptocurrency or have invested in crypto in the past. This represents 56% of the US adult population.

Is crypto more like gold?

The digital gold argument worked as long as it did because Bitcoin seemed to be uncorrelated with any other asset class, which means that its price has not evolved in the same way as other investments. However, as we saw in 2022, Bitcoin is correlated, at least loosely, with the broader market. In other words, Bitcoin has the potential to go down when stocks go down. As a result, it lost some of its appeal to investors earlier this year.

But look at what is currently happening in the financial markets in terms of volatility. Almost everyone agrees that Bitcoin is less volatile than it has been. Some traders even call Bitcoin “boring” now. If lower volatility for Bitcoin is a long-term trend, that would make it a much more attractive investment, wouldn’t it?

Second, Bitcoin is now much more correlated to gold than it has been for a long time. The correlation between Bitcoin and gold is at its highest level in 40 days. This is admittedly a very small sample, but it suggests that traders around the world are trying to figure things out and that relationships between asset classes may change.

The battle to become the world’s safe haven

At a time when many people are worried about tech stocks and the market in general, is it really possible for crypto to become a safe-haven asset? Will people who are worried about their money and savings really trust crypto over gold?

Note that Buterin did not say that “crypto is a better investment than gold”. What he said was that “crypto is the best bet”. I don’t think he’s referring to a casino style bet here. Instead, he frames it in terms of game theory. Buterin entered crypto via the world of multiplayer online gaming, and in the past he has made arguments suggesting that he views financial markets as a similar type of broad multiplayer game. It’s a game where cooperation is key, but communication and trust can be non-existent. It requires knowledge of game theory to be successful.

Based on this, I think Buterin is really suggesting something along the lines of: since it is impossible to communicate directly with market players around the world to find out what they are thinking, and since the range of possible future outcomes is incredibly large, crypto seems to be emerging as the asset that has the highest probability of future success.

For now, gold is obviously a much safer investment than all but a handful of cryptos. But this is where things get interesting, as cryptos such as Bitcoin and Ethereum could become potential havens for nervous investors. Investing in crypto is always risky and volatile, but if asset class relationships continue to shift, it might be worth considering whether now is the time to hedge your bets with some crypto.

#Gold #crypto #buy #Motley #Fool #Crypto

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