Gold And Crypto: Diversifying Your Investment Portfolio

Gold and Bitcoin are two very different types of assets that can serve different purposes in an investor's portfolio. Gold is a precious metal that has been used as a medium of exchange and a store of value for thousands of years. On the other hand, Bitcoin is a relatively new digital currency that was created in 2009. While gold has a long history of maintaining its value over time, Bitcoin is still young and unproven as an investment. However, both assets have been used successfully to store value and hedge against market downturns.

When deciding whether to invest in gold or Bitcoin, it is important to consider your risk tolerance, investment goals, and strategy. Gold is a more stable and less volatile investment compared to Bitcoin, which has seen explosive growth but also significant price swings. Gold is also easier to own, as it can be purchased through a brokerage account, while Bitcoin requires opening an account on a cryptocurrency exchange and storing it in a digital wallet.

One advantage of investing in Bitcoin is its potential for high returns, as its value can increase significantly in a short period. Additionally, Bitcoin allows for transactions to take place anywhere in the world without the need for a central authority. However, the regulatory infrastructure for Bitcoin is still lacking in many countries, and it is subject to media influence and investor sentiment, which can impact its price.

In conclusion, both gold and Bitcoin have their unique advantages and disadvantages, and the decision to invest in one or the other depends on the individual's risk appetite and investment goals. Diversifying one's portfolio by investing in both gold and Bitcoin can be a strategy to consider.

Gold-backed cryptocurrencies

• Tether Gold allows investors to gain direct exposure to the physical gold price, making it suitable for smaller retail investors. Each XAUt token is equal to one Troy fine ounce of gold on a London Good Delivery bar. Tokens are transferable between Tether wallets and can be redeemed for physical gold, which is delivered to any location in Switzerland.
• DigixGlobal allows investors to buy fractional tokens, which are backed by physical gold stored in Singapore and Canada. Each DGX token is equal to 1 gram of gold and can be traded on cryptocurrency exchanges. There are no storage fees for the tokens, but there is a transaction fee of 0.13% per transaction.
• Paxos Gold is issued by Paxos, a regulated and legal custodian. The ERC-20 token allows users to access gold from traditional markets and makes it easier to own, transfer, store, and speculate on gold. Paxos Gold can also be traded as futures contracts.
• GoldCoin is an ERC-20 coin that can be stored and sent from any Ethereum wallet. Each GoldCoin token is equal to 1/1000 of an ounce of gold, making it less volatile than other cryptocurrencies. The token can be redeemed for physical gold or converted back into fiat currency.
• Perth Mint Gold Token (PMGT) is a tokenized version of the GoldPass certificate, backed by physical gold at a 1:1 ratio. The token can be traded for GoldPass certificates, and vice versa, on digital asset exchanges. The Government of Western Australia guarantees the gold, which is stored in Perth Mint's central bank.
• Meld Gold by Algorand (MCAU) makes gold accessible to small investors by allowing the transaction of gold in real time and reducing the volatility associated with the procurement of physical gold. The tokens can be secured on the Algorand Wallet and can be converted to other cryptocurrencies or back into gold certificates and physical gold.

Gold's stability vs. Bitcoin's volatility

Gold and Bitcoin are both seen as safe-haven assets, but they have very different properties when it comes to volatility and stability.

Gold has been valued for thousands of years and is a tangible, physical asset. It has a long history as a store of value and a means of exchange, and its value is relatively stable over time. Gold is also highly liquid and easily transportable.

Bitcoin, on the other hand, is a relatively new, intangible asset. It was launched in 2009 and has only achieved widespread recognition in recent years. Bitcoin is highly volatile, with wild price swings, and its value is influenced by media attention, investor sentiment, regulatory actions, and hype.

Gold has consistently provided stability and reduced portfolio risk during volatile market periods. Its value tends to hold steady or rise during market corrections and recessions, making it a reliable hedge against market downturns.

In contrast, Bitcoin's high volatility undermines its role as a stable store of value. While it can offer short-term gains, its benefits diminish as allocation increases. A small allocation of 2.5% can improve risk-adjusted returns, but any higher allocation causes volatility to spike, leading to larger drawdowns and decreased overall performance.

Bitcoin's behaviour during market stress is more akin to high-risk tech stocks, and its volatility aligns with price swings in blockchain adoption trends. During significant market downturns, Bitcoin tends to track risk assets like tech stocks, offering little protection for investors seeking stability.

Gold's universal acceptance as a store of value, free from geographic or regulatory constraints, further bolsters its stability. It is also highly regulated, making it very hard to steal or fake.

In summary, gold offers stability and reduces portfolio risk, while Bitcoin introduces volatility that can undermine its effectiveness as a stable store of value. Gold has a long history of maintaining its value, whereas Bitcoin is still young and unproven as an investment.

Buying gold with Bitcoin

Gold has been a desirable commodity for centuries, and its value has consistently risen. Buying gold with Bitcoin is a great way to hedge the volatility of crypto and grow your collection of precious metals. Here is a step-by-step guide on how to buy gold with Bitcoin:

Step 1: Set up a Crypto Wallet

Firstly, ensure that you have a crypto wallet that is supported by a reputable platform, such as BitPay. BitPay supports over 100 popular wallets, including Trust Wallet, Trezor, Ledger, and Exodus, as well as exchange-based wallets like Coinbase, Binance, and Kraken.

Step 2: Find a Reputable Gold Dealer

Look for a gold dealer that accepts crypto payments. Several reputable gold and precious metal dealers partner with BitPay to accept Bitcoin and other cryptocurrencies. Some trusted gold retailers that accept crypto include APMEX, American Gold Exchange, Best Bullion, Bullion Exchanges, and JM Bullion.

Step 3: Select Your Gold or Precious Metal

Browse the dealer's website and find the gold, silver, platinum, or other precious metals you wish to purchase. Add your desired items to your cart.

Step 4: Choose Crypto Payment at Checkout

At checkout, select BitPay or a similar crypto payment method. Choose the wallet and cryptocurrency you want to use to pay for your gold.

Step 5: Complete the Transaction

An invoice will be generated, and you will be provided with payment details. Scan the QR code or copy and paste the payment details into your wallet to complete the transaction.

Benefits of Buying Gold with Bitcoin

Using cryptocurrency to buy gold offers several advantages over traditional payment methods:

• No banks are necessary: You can purchase gold without using a bank or money transfer account.
• Speedy transactions: Crypto transactions are often faster than traditional bank transfers.
• No tricky exchange rates: You can make transactions across borders without worrying about currency conversions.
• Low fees: Crypto transactions typically have lower fees compared to wire transfers.
• Secure: Paying with crypto can be safer than using credit cards, as it doesn't require sharing sensitive financial information.

Gold's history as money

Gold has a long history as money, dating back to around 550 BC when gold coins were first struck on the order of King Croesus of Lydia. Over the centuries, gold played a significant role in the international monetary system, with many countries adopting a gold standard where the value of their currency was fixed in terms of a specified amount of gold.

During the 19th century, the use of gold as money evolved with the introduction of paper money. Currencies maintained an explicit link to gold, allowing paper money to be exchanged for gold on demand. This period, known as the Classical Gold Standard, lasted until the outbreak of World War I, which led many countries to suspend or abandon the gold standard.

In the aftermath of World War II, a new international monetary system, the Bretton Woods system, was established. This system fixed the value of the US dollar to gold at $35 per ounce, while other currencies had adjustable exchange rates pegged to the dollar. However, in 1971, the US unilaterally ended its gold standard, marking the end of the Bretton Woods system.

Today, gold is no longer used as a direct form of currency in developed economies. However, it continues to be valued and traded as a precious metal, with investors often viewing it as a safe haven during economic uncertainties. Additionally, the concept of gold-backed cryptocurrencies has emerged, allowing investors to digitize their ownership of gold and providing a link between the traditional value of gold and the modern world of digital assets.

Bitcoin's liquidity

Bitcoin is a decentralised global payment system and the first cryptocurrency. It was created as an alternative to traditional electronic payment methods, removing the need for a central bank or administrator. Transactions on the Bitcoin network are sent directly between users with no intermediary and are recorded in a public distributed ledger referred to as a blockchain.

The rise in liquidity can also be attributed to the macroeconomic conditions that are starting to inject more liquidity into the markets, which is bullish for risk-on assets like Bitcoin. This increase in liquidity can lead to a major liquidity wave, which can cause a strong push in Bitcoin's value.

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