The economic fallout from COVID-19 has led many to reconsider their investment strategies, but some argue there is no need to reinvent the wheel.
Peter Mallouk, chief investment officer at Creative Planning, pushes back against trying to ‘strike it rich’ with more “speculative assets.” According to Mallouk, investors should “focus on buying the stocks of traditionally stable companies that are trading low because of the coronavirus shutdown” instead of turning towards assets like gold or Bitcoin.
Many are not taking his advice. The popularity of cryptocurrencies and precious metals like gold has surged across 2020 as people seek ways to hedge against traditional financial markets’ volatility.
Gold’s long been seen as a stable store of value, while Bitcoin’s powerful innovative n and its vast growth potential have drawn many to the cryptocurrency.
Some savvy investors are even combining elements of both and investing in virtual currencies like Gold Coin, backed by physical gold stored in a vault and audited for transparency.
But what’s the better asset to hedge against financial turbulence and keep investment money safe? A so-called ‘digital gold’ like Bitcoin, or a more ‘tried-and-true’ asset like physical gold.
There are pros and cons to each. Prospective investors should keep reading to help decide what’s best for them.
Go and Get Some Gold
Gold’s been a popular safe-haven asset for millennia. Even in the modern age, the precious metal is used in a wide variety of attractive jewelry and electronics.
Gold also has essentially no correlation with fiat currencies and stock indexes like the S&P 500. This makes gold a useful tool to soften a hit from a sharp downturn in the stock market.
Even in a modern world, gold’s still a very liquid asset with internationally recognized and established systems for trading and weighing.
While gold’s been a popular investment for many, there are a few drawbacks to bullion investing people should understand.
It is possible to fake gold, and there have been several high-profile cases of fake bars being circulating.
According to June 2020 reports, the Wuhan China-based Kingold Jewelry issued 83 tonnes of fake gold as collateral to obtain loans from at least 14 Chinese money lenders and banks.
The “gold” was gilded copper. Aside from running the risk of investing in fake gold, bullion’s physical storage can be expensive, cumbersome, and pose a security risk without the right infrastructure in place.
Gold investors do not have the luxury of accruing dividends or other periodic cash flows like those who buy into traditional financial assets like stocks and bonds can enjoy.
Ride The Bitcoin Boom
One of the most appealing aspects of Bitcoin is its growth potential. There is a finite, limited supply of the cryptocurrency, unlike gold (where there are new ways to mine and extract the metal).
Bitcoin’s price potential only grows as people get more comfortable with it. The virtual currency continues to slowly catch on as a method of payment at major retailers. Bitcoin has shown to be more volatile than gold, making it a risker investment for people with a more conservative market mindset.
It is a lot easier to store large amounts of cryptocurrencies like Bitcoin than precious metals. The blockchain protects Bitcoin from counterfeiting and gives holders a verifiable record of all transactions.
One of the biggest advantages Bitcoin has over gold right now is tax implications. While cryptocurrencies and taxes are still somewhat of a murky avenue, current guidelines offer Bitcoin holders better savings potential over the long-term than for gold bullion stackers.
Per IRS Notice 2041-21, cryptocurrencies as seen as property, which means people who hold for more than 12 months are subject to a maximum capital gains tax rate of 20%. Gold, classified as a ‘collectible,’ is subject to a 28% rate.
While tax laws and regulations can certainly change as the financial landscape does, long-term Bitcoin investors do stand to accrue a better ROI than gold holders.
The Bottom Line: Bitcoin Vs. Gold
Choosing between Bitcoin and gold as an investment vehicle comes down to personal preference.
Some prefer the relative stability of physical gold and its time-tested allure across society.
Others might opt for cryptos like Bitcoin with a strong potential for growth despite volatility and the somewhat erratic nature of the cryptocurrency market. Still, others look to construct a portfolio with both assets to optimize earning potential and mitigate extreme losses.