How cryptocurrencies can replace gold

The coronavirus epidemic that suddenly coveredthe world, showed investors that no asset can be fully protected. Together with the stock market, oil, fiat, and cryptocurrencies also came under attack. In the battle with the pandemic, only gold won, which strengthened in value and proved to be the most protected asset. However, the head of the data analysis department at CEX.IO Broker, Yuri Mazur, believes that in the future, cryptocurrencies can partially replace the precious metal.

Features of the course change

March 3, 2020 the price of an ounce of gold was$ 1585, and by the end of the month the cost of the precious metal rose to $ 1673. May 27, gold was trading at around $ 1,695. Over two months, its rate grew by almost 10%, while all other assets, on the contrary, sank significantly.

It's no secret that Bitcoin has also demonstratedsignificant changes, losing more than half of its value in a couple of days: from $9,130 ​​(on March 8) to $3,800 (on March 12). Of course, there were several reasons for the collapse: the collapse of the S&P 500 index, with which the military-technical cooperation showed a clear correlation, speculation by individual market participants, large injections from “whales” and more along with general widespread unrest. But cryptocurrencies, unlike other assets, tend to quickly recover in price. At the time of publication, Bitcoin is trading around $9,550 and is likely to continue to rise.

Gold is at stake

Recently it became known that several governmentscountries are discussing the possibility of introducing a ban on gold storage. This, of course, can negatively affect the market, since investors will be deprived of a proven protective asset that is less susceptible to the effects of inflation, financial crises, etc. At the same time, from an investment point of view, there is a significant difference between gold and cryptocurrency: gold is not a profitable asset, it does not generate profit. The precious metal only protects the investor's money from inflation or collapse. 

For example, in 2009 the cost of an ounce of goldwas $1337, and the Bitcoin rate – $1 for 1309 BTC. In 2017, the price of the precious metal dropped to $1,150, and BTC jumped to $16,300. The price of gold never rose more than 20% from last year's figure, and BTC could make a breakthrough of 50-70% in a few weeks or even days. Therefore, when comparing these two assets, you need to understand that gold is a protective, savings asset, and cryptocurrency – investment that generates profit for its owner.

The choice between saving and earning

According to the expert, in terms of protecting investorBitcoin will most likely not become a full-fledged replacement for gold due to its nature. Cryptocurrencies still remain a volatile instrument and no one can accurately predict their behavior. The same cannot be said about the behavior of gold, which is quite predictable: during crises, its value rises to $1,690 – $1695, and then drops by 10-15%. 

It is easy to trace in time. The 2008 crisis has become one of the most devastating. Amid the fall of all markets, gold rose by almost 40%: from $ 620 to $ 1,000, and then rolled back. A similar situation is currently being observed, and when the impact of the financial crisis weakens, its price will fall again.

However, cryptocurrencies can easily replace gold in terms of generating profits. Bitcoin is capable of generating profit, both in the short and long term. 

“It all depends on what strategy you choose. But from an investment point of view, I would still be more focused on long-term investments,” – says Yuri Mazur.

For example, last yearThe FinExpertiza audit and consulting network called Bitcoin the most profitable asset: for every ruble invested in the military-technical cooperation, the coin generated almost 2 ruble of profit. That is, if you take for calculation the amount of 300,000 rubles. and invest in MTC, the investor could earn 237,047 rubles last year. If for the same 300 thousand rubles. to buy gold, then at the end of the year the investor would have received a loss of 24,556 rubles.

Can bitcoin replace gold?

Precious metals do not bring money, they onlyprotect finances from inflation or loss during a market storm. Cryptocurrencies do not guarantee preservation of value due to high volatility, but are capable of generating profits 2-3 times higher than the initial deposit. In the current realities, military-technical cooperation will not be able to completely replace gold, just like gold – cryptocurrencies, since these instruments have different purposes.

If governments nevertheless decideconfiscation of gold and a ban on the purchase of precious metals by private and legal entities, the portfolios of investors are likely to be reviewed, and the lion's share in them can take stablecoins that are tied to a specific currency or basket of currencies. In this case, cryptocurrencies can indeed become an alternative to gold and save the value of investments.

text: Yuri Mazur, Head of Data Analysis, CEX.IO Broker