Is cryptocurrency bitcoin a better asset than gold for hedge against inflation?
Gold vs. cryptocurrency: Bitcoins and precious yellow metal are two assets that are not governed by the government. Because gold and cryptocurrency are restricted assets, their prices rise and fall in response to demand and supply. As cryptos have outperformed gold in the face of regulatory uncertainty, there is a debate about whether gold will lose its lustre in the race against bitcoins.
Manoj Dalmia, Founder and Director of Proaasetz Exchange, remarked of the parallels between gold and cryptocurrencies, "Cryptocurrencies, like gold, are a finite digital commodity, as there will never be another bitcoin issued. In terms of scarcity, bitcoins are comparable to gold.
Unlike fiat money, where bank deposits can devalue owing to government-managed inflation, bitcoins and gold are not controlled by the government."
Cryptocurrencies may give gold a run for its money in the asset market, according to Vinshu Gupta, Founder & Director, Nonceblox Blockchain Studio. For a long time, gold has served as the de facto inflation hedge. It is possible that it will be stolen, that it will need to be stored, and that it will require maintenance.
It used to be one of the few safe investments for old money, but that is no longer the case. Bitcoins have begun to be viewed as future gold by investors. It's completely decentralised, doesn't require any storage or maintenance, and can't be stolen. Calling it a hedge isn't quite accurate; I'd call it the most profitable asset on the face of the planet and Mars.
Cryptocurrencies' median yearly RoI (Return on Investment) is 408 percent, according to Vinshu Gupta. "When compared to a 5-7 percent inflation rate, bitcoins not only hedges your position but also generates wealth for future generations," Vinshu Gupta remarked.
When asked about the advantages of cryptocurrencies over gold as a hedge against inflation, Amit Gupta, MD of SAG Infotech, said, "Many institutional investors appear to be moving to bitcoins, maybe seeing it as a better investment alternative than gold, particularly in terms of inflation protection.
Coinbase stated in its first-quarter report in April that it had hosted $335 billion in trades in the previous quarter, with more than $215 billion coming in from 8,000 institutional investors."
Amit Gupta said that, these wealthy investors were urged to invest in bitcoins and other cryptocurrencies because of their intrinsic inflation protection.
When it comes to cryptocurrencies vs. gold, the odds are stacked in their favour. Manoj Dalmia of Proaasetz Exchange outlined four characteristics that make bitcoins not only comparable to gold, but even superior to it:
1] Rarity:
Bitcoin is a unique currency. It can't be made at will because there are only 21 million of them and no one can make any more. That means it can't be controlled or faked by any government. No one will be able to manufacture more gold that is viable. Gold's scarcity fluctuates depending on how much effort you put into finding it.
2] Durability:
Both bitcoins and gold are nearly indestructible. Bitcoins will be used as long as the internet exists. Gold has been used to manufacture jewellery, trade, and other things for as long as anybody can remember.
3] Divisibility:
Bitcoin is divided into satoshis, with one BTC consisting of 100,000,000 satoshis. Gold cannot be divided as readily or accurately as silver, but lesser denominations can be created.
4] Hard to be fake:
Bitcoin and gold cannot be copied or counterfeited. Bitcoin is easily identifiable and impossible to forge. Gold is easily identifiable, yet in some cases it must be examined for purity.
However, Vinit Khandare, CEO and Founder of MyFundBazaar, emphasised the risk component associated with cryptocurrency investments, saying, "Bitcoins are a decentralised asset class that is not supported by any government. These digital coins are riskier and have a higher volatility. Furthermore, bitcoins lack sufficient historical data to establish a long-term knowledge of their genuine relationship with inflation."
