Bitcoin Gold: Where To Invest And Key Strategies

Bitcoin and gold are both tools of speculation, or safe-haven assets, that people turn to in times of economic turmoil. Gold has been used as a medium of exchange and a store of value for millennia, while bitcoin is a much newer affair, having been launched in 2009. Both are mined, but while gold is dug from the ground, bitcoin is created by computers solving complex equations.

Bitcoin's value has soared since its inception, and it has endured wild price swings. Its value dropped to about half from mid-February to mid-March 2020, but jumped to nearly $11,500 five months later. These dramatic price swings mean that bitcoin cannot be viewed as a way to store value, at least not yet.

Gold, on the other hand, has historically been used in many applications, including currency, luxury items, and specialised applications in dentistry and electronics. It has proven to be a stable investment over the long term.

If you are looking to invest in bitcoin, you will need to open an account on a cryptocurrency exchange and hold it in a digital wallet. If you are looking to invest in gold, you can buy it directly from dealers or through a brokerage account.

Gold vs. Bitcoin: Which is a better investment?

Overview

Gold and Bitcoin have become popular investment options in recent years. While gold has been a traditional investment choice for centuries, Bitcoin and other cryptocurrencies have gained traction among investors looking for the latest trends.

Gold is a trusted investment that has been used as a safe haven in times of economic crisis and is widely considered a hedge against inflation. Its value is not tied to any governmental or economic system, and it is recognised and valued worldwide.

Bitcoin, on the other hand, is a decentralised digital currency that operates independently of central banks and is powered by blockchain technology. It is a relatively new investment option that is popular among tech enthusiasts and trend-watchers.

The pros and cons

Gold has a proven track record as a stable investment over centuries. It is rare, has a limited supply, and is always in demand due to its use in various industries. However, gold typically generates modest returns, making it better for wealth preservation than wealth generation.

Bitcoin offers the possibility of large and quick returns. For example, its value skyrocketed from about $3,800 in January 2019 to over $60,000 in November 2021. However, Bitcoin is a volatile asset, and with the potential for huge rewards comes the potential for significant losses.

The answer depends on your investment strategy, risk tolerance, and preferences. Gold is generally best suited for investors who prioritise stability and have long-term investment goals. Bitcoin, on the other hand, is better for investors willing to take on more risk for potentially higher returns.

Both gold and Bitcoin have their advantages and drawbacks, and the right choice depends on your individual circumstances and investment goals. Gold is a more stable but less growth-oriented investment, while Bitcoin is more volatile but offers the potential for quick and substantial returns. Ultimately, it is essential to do your research and consult a financial advisor before making any investment decisions.

How to buy gold with Bitcoin

Overview

Gold has proven to be a stable investment for centuries, and buying gold with Bitcoin can help to diversify your investment portfolio and limit your risk. The process of purchasing gold with Bitcoin is similar to buying any other product with a traditional payment method. Here is a step-by-step guide on how to buy gold with Bitcoin:

Step 1: Choose a Reputable Dealer

It is important to select a reputable online dealer that offers gold products and accepts Bitcoin as a payment method. Some recommended options include Crypto Emporium, Bitgild, JM Bullion, APMEX, BGASC, and Sharps Pixley. These dealers offer a range of gold products, including bullion, coins, bars, and jewelry, and have state-of-the-art security features and competitive prices.

Step 2: Register an Account

Once you have chosen a dealer, you will need to create an account on their website. This usually involves providing personal details and following the instructions to set up and activate your profile.

Step 3: Browse and Select Gold Products

After registering, you can browse the dealer's selection of gold products, including bullion, coins, bars, or jewelry. Select the items you wish to purchase and add them to your cart.

Step 4: Proceed to Checkout and Provide Shipping Information

When you are ready to purchase, proceed to the checkout page and provide your shipping and personal information. Some dealers may require a valid photo ID and proof of address for larger transactions.

Step 5: Choose Bitcoin as the Payment Method

At the payment stage, select Bitcoin (BTC) as your preferred payment method. You will then be given the dealer's BTC address or QR code to complete the transaction.

Step 6: Complete the Bitcoin Payment

Copy the dealer's BTC address or scan the QR code into your crypto wallet and confirm the transaction. Ensure that you send the payment within the specified time frame to guarantee the exchange rate.

Step 7: Wait for Order Confirmation and Delivery

Once the payment is verified, the dealer will confirm your order and proceed with delivering your gold purchase. This typically takes one business day or a few days, depending on the dealer and the weight of the package.

Benefits of Buying Gold with Bitcoin

Buying gold with Bitcoin offers several advantages, including quick transactions, low fees, and the elimination of banks or exchange margins. Additionally, gold is a stable investment that can help diversify your portfolio and protect against volatility.

Bitcoin's liquidity

Liquidity is a key parameter of Bitcoin. The more liquid a market is, the more stable it is. Liquidity is the speed of transforming an asset into cash, in size, around current prices. Funding liquidity is the speedy access to cash, and funding liquidity drives market liquidity.

Bitcoin is considered a highly liquid asset. When buying or selling Bitcoin, there are always traders who are ready to execute an order with minimal impact on the asset price. However, a less liquid, more obscure altcoin will probably affect its price as a result of a major transaction.

During the global financial crisis, Bitcoin was the most stable asset, outperforming gold and other traditional assets. Its liquidity dipped during the peak of the market crash but recovered much faster than traditional markets. According to experts, the Bitcoin market depth is already above the average for the year, indicating its resilience and liquidity.

Bitcoin's high liquidity is also linked to its unique characteristics as a digital asset. It is decentralized, allowing users to make fast, safe, and cheap transactions without centralized authorities. This attracts traders and investors seeking to profit from its price movements.

In summary, Bitcoin's liquidity is driven by its nature as a decentralized digital asset and the presence of active traders and investors. Its high liquidity contributes to its stability, making it a favourable asset for those seeking to minimize the impact of transactions on the overall market.

Bitcoin as a safe haven

Bitcoin has been touted as a safe haven asset, but what does that mean? Safe haven assets are those that are uncorrelated or negatively correlated with other assets during times of negative market conditions. Traditional safe-haven assets include cash, government bonds, and gold.

During times of economic uncertainty, investors seek safer assets. In the past four years, Bitcoin has significantly outperformed traditional safe-haven assets. Since the start of the pandemic, Bitcoin has skyrocketed nearly 1,000%. In comparison, gold has risen by 33% and U.S. Treasuries have declined by 12%.

Bitcoin's performance during the recent economic turmoil demonstrates its potential as a safe-haven asset. However, it is important to note that Bitcoin is also highly volatile, registering declines of 50% or more throughout its history.

One of the key advantages of Bitcoin is its decentralized nature, which means it isn't controlled by any central authority. Additionally, its software design ensures that there will only ever be 21 million coins in circulation, creating absolute scarcity.

While Bitcoin has yet to be widely accepted as a safe-haven asset, its performance during the recent economic turmoil and its unique characteristics suggest that it could become an increasingly popular choice for investors seeking to protect their capital during uncertain economic times.

Overall, Bitcoin's decentralized nature, limited supply, and strong performance during economic downturns make it an attractive option for investors seeking safe-haven assets. However, its high volatility and the relatively new nature of cryptocurrency as an asset class are also important factors to consider when evaluating Bitcoin as a safe haven.

Gold's role in a portfolio

Gold has been used as a store of value and an investment asset for millennia. It is one of the oldest forms of money, with gold coins first being used in the Kingdom of Lydia (now part of Turkey) around 550 B.C. Gold has maintained its value over long periods and is used to hedge against market downturns.

Gold's unique physical properties have made it an ideal form of coinage. It is easy to shape into uniform chunks, yet highly durable and virtually indestructible. It is also difficult to counterfeit, as experts have many ways to verify the authenticity of gold coins and bars.

Gold has a low correlation to stocks and bonds, making it an ideal portfolio diversifier. It can be used to improve the performance of a stock/bond portfolio, as it has a negative correlation to both stocks and bonds. For example, during periods of rising inflation, gold performs well. When the S&P 500 had a negative year, it fell on average by 14.8% in inflation-adjusted terms, while gold rose by 7.8%.

Gold is also a safe haven asset during times of economic or political turmoil. It has a long history as a safe haven, with its price largely independent of other asset classes. It is also traditionally used as a refuge against weakness in the dollar and can serve as a hedge against inflation and market volatility.

However, gold has been a "so-so" long-term performer in terms of return generation. Its long-term returns have lagged behind US stocks and diversified portfolios combining stocks and bonds. Gold also has relatively high volatility and is subject to a fair amount of downside risk.

Therefore, gold is best viewed as an insurance policy or a safe haven rather than a core holding in a portfolio. Morningstar's Role in Portfolio framework recommends that individual investors limit their gold exposure to 15% of assets or less.

Frequently asked questions