By James Blacker, Benzinga

The allure of potential fast profits has drawn more and more investors to digital currencies over the last decade. According to a market sizing report published by Crypto.com in January, the number of cryptocurrency owners globally grew 34% in 2023, from 432 million in January 2023 to 580 million in December 2023. Just seven years earlier, in 2016, the number of people holding cryptocurrencies was just 5 million.

It is no surprise that these digital assets are so popular. Since 2016, Bitcoin (BTC), the original cryptocurrency, has exploded in value from around $435 to $62,916 at the time of writing. Ethereum (CRYPTO: ETH), meanwhile, was worth less than a dollar in early 2016 and today is worth over $3,000 and nearing $3,500.

However, while this relatively new financial ecosystem has matured significantly in recent years, it is still seen as highly speculative. BTC, ETH and countless other digital coins continue to experience extreme volatility, which, in addition to regulatory uncertainties, makes them a high-risk component of any investment portfolio.As digital currencies continue to rise, is there a place for traditional, tangible assets like physical gold in a diversified investment portfolio?

Benefit

Gold

Digital Currency

Stability

Proven track record over centuries

Highly volatile and speculative

Tangible Asset

Physical possession, can be securely stored

Intangible, exists only in digital form

Hedge Against Inflation

Historically holds value during inflation

Uncertain performance during inflation

Market Regulation

Well-regulated market

Often unregulated, subject to sudden policy changes

Long-Term Value

Reliable store of value over long periods

Uncertain long-term value and sustainability

Security

Immune to hacking and digital fraud

Prone to cyberattacks and security breaches

Economic Downturn

Safe-haven asset during economic crises

Unpredictable behavior during downturns

Portfolio Diversification

Balances risk in a diversified portfolio

High-risk component, potential for high returns

Intrinsic Value

Has intrinsic value as a physical commodity

No intrinsic value, value driven by market sentiment

Historical Performance

Strong performance during financial crises

Limited historical data, highly variable performance

Liquidity

Highly liquid, easily convertible to cash

Can be liquid but depends on market conditions

Regulatory Clarity

Clear regulations and a well-established market

Regulatory environment still evolving, often unclear

Geopolitical Influence

Prices influenced by global geopolitical events

Prices influenced by market speculation and media hype

Digital currencies are characteristically unstable and can experience wild price swings. BTC, for instance, crossed over $64,000 in November 2021, only to plummet to below $17,000 around a year later. By March 2024, the asset had hit a new all-time high of almost $75,000. Smaller coins, such as Dogecoin, have seen even sharper oscillations in value, often caused by Elon Musk’s tweets. These extreme fluctuations are caused by an array of factors, including a limited supply, and digital currencies are particularly prone to media hype and investor sentiment. Furthermore, without any intrinsic value, some, including Warren Buffet, see no long-term value in cryptocurrencies.

In contrast, buying physical gold is an investment in a more stable and tangible asset. While gold definitely can often be somewhat volatile in the short term, the precious metal has proven to be a reliable store of value over long periods of time, even in periods of economic uncertainty, and can therefore act as a hedge against the volatility of digital currencies.

While cryptocurrencies have only been around for a decade or so, gold has a history spanning millennia and a record of resilience in economic downturns. During the 2007-2008 global financial crisis, for example, investors flocked to safe-haven assets, causing gold to double in value between 2007 and 2012 while many other asset classes faltered. Similarly, the price of gold reached all-time highs during the Covid-19 pandemic. As a safe-haven investment, gold prices also hit new highs in December 2023 and in 2024, driven by geopolitical turmoil among other factors.

Conversely, the performance of cryptocurrencies in a sustained recession remains uncertain, and it is unclear how these digital assets would react under such circumstances.

Governments around the world are beginning to work out regulations for digital currencies, but their lack of regulation thus far has led to them being dubbed the “Wild West” of financial markets. This lack of governmental oversight is part of what makes crypto so exciting, but also risky and vulnerable to hacking. Over $1.7 billion in cryptocurrency was stolen in 2023, and $3.8 billion was stolen in 2022.

While new regulations could improve the market from hacks and data breaches, they can also drastically affect the value of digital currencies. For instance, BTC and other digital coins plunged after reports of China’s crackdown on cryptocurrency mining.

In stark contrast, physical gold offers a much higher level of security and stability. It is immune to many of the risks associated with digital currencies. Once purchased, gold can be securely stored, eliminating the threat of digital fraud. By adding gold to their portfolio, investors can also avoid the regulatory uncertainties linked to digital currencies.

Digital currencies can offer high returns, but prudent investors would be wise to balance their portfolio with physical gold. The stability and security of gold can offset the risks of cryptocurrency assets and ensure a more well-rounded investment portfolio. Moreover, with analysts predicting that gold will continue to rise for the remainder of the year, now could be the perfect time to buy.

As a trusted precious metals dealer with a proven track record, Priority Gold can help novice and experienced investors invest in gold through its expertise, resources and guidance.

Visit Priority Gold’s website to learn more about how physical gold can enhance your portfolio and safeguard your financial future.

Featured photo by Traxer on Unsplash.

Priority Gold is known as "America's Precious Metals Dealer" and is one of the leading precious metals retailers in the United States. Headquartered in Dallas, Texas, the company focuses on helping customers diversify their savings and retirement holdings with precious metals. They are also proud partners of the World Champion Texas Rangers major league baseball team! Since its inception in 2015, Priority Gold has played a pivotal role in facilitating IRA rollovers into gold and silver, collaborating with Preferred Trust Company to provide custody services. The company has earned top accolades such as an A+ rating from BBB, AAA rating from Business Consumer Alliances, and a 5-star rating on Trustlink.

This post contains sponsored content. This content is for informational purposes only and not intended to be investing advice.

Alex Lin

alex.l@prioritygold.com

https://prioritygold.com/

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