Cryptocurrencies such as Ethereum and Bitcoin are on the rise. The broker and Forex community see them as the digital equivalent of gold, including inflation protection. Not all investment experts share this view.
There is an optimistic mood in the crypto markets. The second largest cyber currency, Ethereum, hit a record high of just over $4,600 last year. The undisputed number one among cryptocurrencies, Bitcoin, remains within reach of its record low of just under $67,000.
The first-ever approval of an ETF on Bitcoin futures in the US has given the entire crypto market a huge boost in recent weeks.
Another factor supporting the price of the Bitcoin chart is likely to be the currently mounting concerns about inflation worldwide. For many Bitcoin adherents, the cryptocurrency is considered “digital gold” for the short term and also… a promising long term one.
Differences between crypto and gold
Unlike gold, cryptocurrencies are elusive and an invention of the previous decade, which remains highly speculative and volatile when you buy or sell them. Compared to physical precious metals, the price of Bitcoins is about four times more volatile.
In addition, cryptocurrencies are only available digitally. This makes them easy to trade for an Exness broker with Metatrader 5. However, unlike Exness, some websites can be vulnerable to hacking, which raises a big question mark about their legal security.
Gold, on the other hand, is completely physical and offers security and protection against counterparty default that no other tradable asset can provide. In addition, gold has a history that goes back thousands of years: the global gold trade has stood the test of time and takes place in a deep and liquid market.
Bitcoin volumes are less certain; different exchanges provide very different data and decentralized trading is not reliably reported. Much Bitcoin trading may have grown, however, it has not been accompanied by a decline in gold trading volumes.
So, given the current situation, the question of whether cryptocurrencies will replace gold seems almost rhetorical. The gold investment behavior of recent months and the development of the price show very clearly: cryptocurrencies will not catch up with gold yet.
Parallels Between Bitcoin And Gold
Indeed, a closer look reveals some parallels between gold and Bitcoin: in both cases, for example, the creation of new units involves a high energy input.
Moreover, both Bitcoin and gold have limited availability: gold deposits on Earth are finite, while Bitcoin’s algorithm sets the upper limit at 21 million units.
Central banks, on the other hand, can create currencies such as the dollar, euro and yen, so-called fiat money, virtually out of thin air. So, is Bitcoin a good inflation hedge, or is it even better than gold?
Experts divided on Bitcoin
Multiple experts are now advising anyone who is now afraid of losing their savings due to negative interest rates and rising inflation to consider investing in both gold and Bitcoin.
An either-or decision is counterproductive. After all, diversification is essential when building a profitable portfolio.
However, other experts have a different view: “Bitcoin has only been around since 2009. Therefore, cryptocurrencies have experienced an almost inflation-free period until now. There are no empirical values in this regard.”
What good is the ‘safe harbor’ gold?
Gold, on the other hand, has built up its reputation over the centuries as an inflation and crisis-resistant store of value and has survived several wars and financial crises.
Normally, gold should move significantly more. The yellow precious metal has been hovering around $1,800 for months and is down about nine percent since the start of the year.
DAX, Dow and Nasdaq have no inflation fears
The stock markets, on the other hand, have surprised positively as a hedge against inflation. The rule used to be that if inflation went above three percent, the markets would turn sideways or fall. That rule is a bit bloated at the moment — until now.
In fact, soaring inflation rates have for now lost their fear of equity markets – probably also because central banks are no longer willing to put on the brakes.
Both the DAX, Europe’s leading index, and major US indices such as the Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite are trading at record levels.
That the records in stocks and cryptocurrencies are currently going hand in hand comes as no surprise. Right now we see a risk-on process – a push in all risky assets. Stocks such as Tesla are being staked, as are cryptocurrencies such as Bitcoin and Ethereum.
Bitcoin without real underlying value
However, there is a big difference between stocks and cryptocurrencies: for example, stocks are backed by existing values; after all, you are buying a share in a real existing company.
Cryptocurrencies, on the other hand, have no intrinsic value. Bitcoin was developed with the intention of replacing conventional currencies in their payment function. It hasn’t even come close to achieving this.
Bitcoin on track for $100,000?
Nevertheless, Bitcoin, Ethereum and other currencies may continue to rise in the short to medium term for now. The underlying factors for the entire crypto market are promising, so we expect new all-time highs before the end of this year.
It wouldn’t come as a surprise to most investors if Bitcoin broke the magical $100,000 mark by 2024.
This is a scenario that experts can also envision: “In the past, Bitcoin has traveled the distance between the powers of 10, i.e. between $100, 1,000, and $10,000, very quickly, so the rise to $100,000 could very well happen. . soon.