Is cryptocurrency a kind of gold?
Investment advisors are often asked questions like these ones:
What do you think about buying cryptocurrency for inflation protection? Doesn’t cryptocurrency carry the same risks as stocks? Why do people talk about gold as a protective tool, but cryptocurrency is not classified as such a tool?
Investment advisors try to answer these popular questions about cryptocurrency. They explain that such comparisons could seem rather strange. Why can’t these tools be compared? The Investment advisors are not supporters or opponents of cryptocurrencies – professionals remain neutral towards them. Just like towards the Singapore dollar, the Mongolian tugrik and many other currencies and so on.
Only cryptocurrency has caused such a stir in the market. And the reason for this excitement is the crazy growth in the value of this new currency. It turns out that Bitcoin is bought in the hope of its growth. That is, in fact, this is a feature in a casino, but not an investment tool. No other reason for buying it.
Let`s compare Bitcoin to inflation defenses, stocks and gold. Cryptocurrencies cannot inherently be a hedge against inflation. Inflation protection assumes a guaranteed income at or slightly higher inflation. The cryptocurrency doesn`t give any guarantees. Yes, it can grow 1000% above inflation. But it can also lose 50% of its value.
Comparer les crypto-monnaies aux actions can`t stand any criticism. Behind the stock is a business that generates cash flow. When the profit of the company is growing, the shares are growing too. Profits are falling – stocks are also going down. Everything here is completely clear and logical.
What’s behind cryptocurrency? – There is nothing.When bitcoin grows by 20% per day, and the next month it falls by 30% – it’s just a struggle between speculators in the foreign exchange market. Any currency can behave in the same way. Then only price fluctuations will be smaller…
What`s about gold?
Comparing cryptocurrency to gold is even more surprising than comparing it to stocks. Gold has conquered and maintained its authority over 6500 years of its existence – that is how many years, according to archaeologists, mankind is familiar with this precious metal. Gold was once a unit of account, and later became a means of storing and protecting capital. (By the way, some adherents of the crypt compare the crypt and gold in this parameter – that gold isn`t a means of calculation, but has a high value).
So, gold is over 6,500 years old. How old is Bitcoin? – Not many over 11 years old. It was created in 2009. Comparing Bitcoin and gold in value is like comparing Confucius to a newborn baby. It is possible that this baby will also become a sage, but this takes a long time.
In the meantime, it is highly likely that the new currency will remain a toy that no one will need over time. Everything new is subject to the test of time.
Let`s recall the history of the appearance in the 19th century of metal, which for 40 years (!) was more expensive than gold. In 1850, scientists began to obtain small quantities of the metal, which made a splash all over the world. And from 1850 to 1890 this metal was considered the most valuable – only noble families could afford dinner services from it.
And then everything changed. Scientists have learned to mine this metal in large quantities and it has lost its value. The name of this metal is Aluminum. Today, 1 kg of aluminum costs just over two dollars. And 1 kg of gold costs 56,000 dollars.
You should agree that today it is difficult to believe that aluminum was once more expensive than gold.But it often happens with something new. Of the many new technologies and inventions, only a very small part passes this test of time and remains with us.
You shouldn’t literally apply the history of aluminum to cryptocurrencies. This story only says that everything new takes a long time to prove its value.Perhaps it will take at least a hundred years before a cryptocurrency proves its real value. Of course, if this value is real.
In the meantime, crypto is just a new participant in the foreign exchange market.
And buyers of this currency should understand all the risks associated with it – until it becomes a normal settlement currency with normal volatility, it will remain an unpredictable game chip.
The materials of the article are used, translated from the article of the site https://lkapital.ru/
Always yours, Jack!
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13.04.2021