Gold has served as a store of value for thousands of years. For this reason, it has been widely used by investors as a hedging tool against the effects of recessions and inflation, often caused by geopolitical tensions.. In light of recent events such as the COVID-19 pandemic and more recently the military crisis between Russia and Ukraine, many investors have looked to alternatives to gold and other precious metals as hedging options. As we move into a digitized age, it is a prerequisite that alternatives to gold are equipped to face the future. In this search for a contender to challenge gold’s dominance, bitcoin (BTC) has shone the brightest..
A rally in the price of gold is often an indicator of anxiety in traditional stock markets, and the current consensus among investors is that gold is currently overbought. Gold prices have hit as high as $2,000 as investors weigh the geopolitical and economic ramifications of the conflict between Russia and Ukraine.
On the other hand, during this same period, bitcoin and other cryptocurrencies have increased capital funding. Research firm Fundstrat said that venture capital buyers poured approximately $4 billion into the cryptocurrency space during the last three weeks of February 2022. In the first week of March 2022 another $400 million was poured into startups within the cryptocurrency space. This increase in funding suggests that global investors are seeking more exposure to a space they believe could withstand the fallout from the Russia-Ukraine conflict.
The ongoing conflict has seen both populations suffer economically. Military activity inside Ukraine has caused many businesses to close, which has naturally hurt the local economy. Russia has been subject to economic sanctions that have resulted in restrictions on bank accounts, loss of access to most forms of electronic payment, and the devaluation of its local currency. Due to the decentralized nature of bitcoin, there are still no uniform international laws governing cryptocurrencies, which means that BTC maintains its value regardless of the location of the holder.. Bitcoin is legal in most countries, and some have even declared it legal tender.
The crises that have caused the displacement of people have shown the potential impact that bitcoin could have in the future. Bitcoin does not require the enormous amount of effort required to transport gold. An individual would not have to declare their bitcoin when crossing international borders and bear the risk of confiscation or theft associated with transporting physical gold.
The potential utility of bitcoin in times of need increases its appeal to traditional investors.. This appeal has also grown thanks in part to the recent drop in the value of bitcoin. A key advantage bitcoin has over other cryptocurrencies is awareness by the general public, as it has been around long enough to gain support and recognition and in that time has even shown some trends.
Stability in the face of crisis
The global COVID-19 pandemic proved to many that bitcoin can withstand the fallout from the conflict between Ukraine and Russia.. The pandemic caused a global economic decline for many traditional sectors. Coinbase reported $1.4 billion in fiat and cryptocurrency entering its exchange wallets in 24 hours during the height of the pandemic in March 2020.
During the first half of March 2020, investors quickly realized that bitcoin was managing to hold its value while traditional stock values crumbled around it. This caused the amount of capital poured into the cryptocurrency to increase, eventually leading to an all-time high of around $60,000 in March 2021. The stability displayed by bitcoin during that particular crisis has increased its appeal as a hedging option for those skeptical of gold’s future viability..
Despite the recent explosion within the crypto sector, cryptocurrency markets continue to trail behind traditional market investments in terms of valuations. Thanks to widespread exposure to the potential of bitcoin, we have seen this gap close at a much faster rate than initially anticipated. Investors have always looked for the most current and viable options for their portfolios.
With the advantages that bitcoin has over gold and the certainty of a digitized future, many investors are looking to diversify their portfolios, and bitcoin seems to be the best option.. This incremental flow of capital into the cryptocurrency space may only last so long until the floodgates open, allowing BTC to take its place as the new gold.
This article does not contain investment advice or recommendations. All investments and trading involve risk, and readers should do their own research when making a decision.
The views, thoughts and opinions expressed herein are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Sharaz Ahmed is the Managing Partner of STORM Partners and Co-Executive Director of the Crypto Valley Association. With experience and a deep understanding of innovation, Sheraz Ahmed has advised hundreds of organizations in implementing modern practices to further their business objectives. He drives growth, collaboration, and integrity across the global blockchain ecosystem.
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