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Gold prices have soared to new heights, reaching a record level of $2,733 per ounce, while Bitcoin is performing well, nearing the $70,000 level. The rally was fueled by increased investor demand for safe-haven assets on the back of Fed interest rate cuts, Chinese economic stimulus and rising geopolitical tensions in the Middle East. This has reignited the debate over which asset is a better investment: gold or Bitcoin.
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Bitwise Asset Management, a company specializing in cryptocurrency index funds and ETFs, sees Bitcoin and gold as assets with distinct advantages. In an interview with Quartz, Bitwise Chief Investment Officer Matthew Hogan explained that while Bitcoin has the potential for higher returns, gold has more stability. He emphasized that Bitcoin has advantages over gold, especially in terms of growth potential and long-term utility.
Why compare Bitcoin to gold?
Bitcoin is often referred to as “digital gold” because it shares some key characteristics with precious metals. Like gold, many believe that Bitcoin has a finite supply, with only 21 million pieces ever mined, making it inherently scarce and increasing its value over time. This limited supply introduces a deflationary element, in contrast to traditional fiat currencies, which can be freely printed.
Additionally, Bitcoin and gold are both decentralized assets. This means that it operates independently of central bank or government control and is less susceptible to policy fluctuations. Investors see this as a hedge against economic instability, especially during times of inflation and market volatility. Therefore, both assets are often seen as safe havens and stores of value when traditional markets are down.
What is the difference between Bitcoin and Gold?
Despite the striking similarities between Bitcoin and gold, there are also significant differences, one of which is price volatility. Bitcoin tends to experience much more dramatic price fluctuations than gold, sometimes within a day.
According to Hogan, the role of Bitcoin in an investment portfolio is fundamentally different from that of gold. While both assets can act as a hedge, Bitcoin’s high volatility means profits or losses can be amplified, making it an attractive option for investors willing to take on risk for potentially higher rewards. more suitable. In contrast, the stability of gold offers a more conservative approach, providing stable protection against economic uncertainty.
“Adding Bitcoin to your portfolio will give you higher returns without increasing risk, and adding gold to your portfolio will give you the same returns but with less risk,” he told Quartz. Ta.
Bitcoin has a big impact on your portfolio
Hogan pointed out that despite their similarities and differences, gold and Bitcoin do not have the same impact on investment portfolios. He used a vivid analogy to explain this, comparing the two assets to ingredients in a soup. He explained that adding gold to a portfolio is like adding water to soup: it won’t change the flavor much unless you add a significant amount. Gold’s stability and gradual influence means that it acts as a stabilizing force, but unless it forms a large part of your investment mix, the effect is subtle.
In contrast, Hogan likened adding Bitcoin to a portfolio to adding pepper to soup. Even small amounts can make a noticeable difference. Bitcoin’s high volatility and growth potential can have a significant impact on portfolio performance and increase returns, but it also poses greater risk. This analogy highlights how Bitcoin, despite its small allocation, can play a dynamic and immediate role in an investor’s strategy.
Here’s why investing in Bitcoin is better than gold
In his analysis, Matthew Hogan demonstrates that even modest allocations of 1.0%, 2.5%, or 5.0% Bitcoin in a traditional 60/40 portfolio of stocks and bonds can significantly improve returns. I referenced Bitwise data. Slightly increased risk.
For example, allocating 2.5% to Bitcoin has been shown to increase overall portfolio returns by as much as 50 percent with just a small increase in volatility. This suggests that Bitcoin’s high growth potential can significantly improve portfolio performance even at low levels of exposure.
In contrast, Hogan explained that gold has a more subtle impact on returns. Although gold didn’t contribute much to boosting profits, it played an important role in reducing overall portfolio risk and served as a stabilizing asset during times of economic uncertainty. This distinction highlights the different roles these assets can play within a diversified investment strategy: Bitcoin as a high-growth, high-risk component, and gold as a stable, risk-mitigating component.
How is a Bitcoin ETF different from a gold ETF?
More than 5,000 exchange-traded funds (ETFs) have been launched in various sectors over the past 30 years, and the Bitcoin ETF has outperformed them all, including the hugely successful gold ETF. Following SEC approval and subsequent debut in January 2024, U.S. Bitcoin ETFs have amassed over $21 billion in total net flows, an impressive accomplishment considering the typical challenges faced by new ETFs. It is.
By comparison, gold ETFs took about five years to reach similar levels of net inflows. Hogan agreed, saying that Bitcoin is a more effective addition to a portfolio than gold to achieve the goals most investors seek.
And what about the technology effort, Ether?
In addition to the Bitcoin ETF, the Ether ETF also received SEC approval this year, raising the possibility that other crypto ETFs such as XRP and Solana will soon follow suit.
Upon launching the Ether ETF, Hogan predicted that these exchange-traded products would have a greater impact on Ethereum than on Bitcoin. He noted that the introduction of the Ether ETF could cause the price of Ether to rise and surpass the $5,000 level.
He told Quartz that if Bitcoin is like digital gold, Ether is like tech companies, including Apple (AAPL+0.93%), Nvidia (NVDA-0.08%), and Microsoft (MSFT+0.39%). He said that it is virtually a member of the Nasdaq 100. ) etc. Like these tech giants, Ether is driven by innovation and practicality, given its role as the backbone of decentralized applications and smart contracts.
“If you’re a tech investor and you don’t own Ethereum, you’re missing out,” he says. “It would be like technology investors not owning Nvidia.”
Why is it finally time to think about Bitcoin?
Mr. Hogan highlighted the importance of cryptocurrencies, particularly Bitcoin, citing recent trends in both Bitcoin and gold prices. He said that while Bitcoin is nearing all-time highs, gold has already reached all-time highs and there are concerns among investors about the stability of traditional fiat currencies and broader economic uncertainty. He pointed out that this suggests that the situation is increasing.
Hogan said this trend confirms a shift in investor sentiment. While Bitcoin has the potential for higher returns, making it an attractive option for those seeking growth, gold remains the go-to asset for those who prioritize stability and wealth preservation. There is. The choice between the two ultimately depends on an investor’s risk tolerance and financial goals. Those who accept increased volatility for the potential for greater rewards may lean toward Bitcoin, while more conservative investors may prefer the safety of gold’s stable track record.
He added: “Stay with stocks and bonds, but leave some space for this new asset (Bitcoin) that brings unique enhancements to your portfolio and has huge upside potential.” Ta.
