- Date : 27/08/2021
- Read: 3 mins
- Read in हिंदी: क्रिप्टो बनाम सोना: बेहतर विकल्प कौन है?
Gold and cryptocurrencies can be great diversifiers for your portfolio as they provide both stability and high returns.
The buzz around the new global crypto-rich has piqued the interest of Indian investors as well. Cryptocurrencies like Bitcoin, Ethereum, Tether and even the meme-based Dogecoin have delivered astonishing returns in a short time. In the meantime, yields on gold have plateaued since the pandemic-driven high of 2020.
For people who are looking at alternative investment choices, the dilemma is literally between the oldest known store of wealth versus one of the future! So how do the two stack up against each other?
Both gold and established cryptocurrencies such as Bitcoin are effective avenues to diversify one’s investment portfolio and act as a hedge against traditional asset classes. However, until recently, investment professionals and seasoned investors did not make a serious comparison between the two.
The case for gold
Gold has been a medium of exchange for thousands of years and has unmatched acceptability from people across economic backgrounds and geographies. Cryptocurrencies, on the other hand, are accessible only to new-age digital investors and considered as a tool of the privileged. Some experts say that crypto assets may never gain the same kind of universal acceptance that gold enjoys.
Another argument in favour of gold is the fact that central banks and other governmental and financial institutions hold large reserves of the asset and endorse it. Cryptocurrencies, on the the hand, are still struggling to find legitimacy in India. The anonymity and decentralised transacting process does not sit well with the government. Whether the investment is a flash in the pan or a sustainable asset remains to be seen.
At the other end of the spectrum, a lot of progressive international businesses such as Tesla, Microsoft, Home Depot, PayPal, Twitch, and Square, among others, are open to accepting payments in cryptocurrencies. Global financial giant Fidelity has recently taken up custodianship for Bitcoin. The security over blockchain ledger, liquidity, and ease of transacting make cryptocurrencies a lot more dynamic compared to gold – that is purely held for ‘defensive’ purposes.
Related: What makes a better wedding gift – gold jewellery or gold bonds?
Should gold or crypto have a place in your portfolio?
Yes, it need not be an ‘either or’ choice. Both gold and cryptocurrencies can act as diversifiers, yet play very different roles in your portfolio. If your allocation towards alternative assets is 5%-10% of the portfolio, you could consider splitting the exposure equally between the two.
Gold has consistently delivered close to 8% returns over the last 50 years. It helps counter inflation and – more importantly – is a price-stable asset. Cryptocurrencies have outperformed every other asset class over the last 10 years but tend to be very volatile. To counter volatility and risk, invest in a basket of 3-5 top crypto assets through a SIP offered by investment platforms or via mutual funds.
Irrespective of your choice, don’t go in with the hopes of getting rich quick. Instead, maintain asset allocation and stay the course to generate long-term wealth. Planning to trade in cryptocurrencies? Here’s how to read crypto charts
The buzz around the new global crypto-rich has piqued the interest of Indian investors as well. Cryptocurrencies like Bitcoin, Ethereum, Tether and even the meme-based Dogecoin have delivered astonishing returns in a short time. In the meantime, yields on gold have plateaued since the pandemic-driven high of 2020.
For people who are looking at alternative investment choices, the dilemma is literally between the oldest known store of wealth versus one of the future! So how do the two stack up against each other?
Both gold and established cryptocurrencies such as Bitcoin are effective avenues to diversify one’s investment portfolio and act as a hedge against traditional asset classes. However, until recently, investment professionals and seasoned investors did not make a serious comparison between the two.
The case for gold
Gold has been a medium of exchange for thousands of years and has unmatched acceptability from people across economic backgrounds and geographies. Cryptocurrencies, on the other hand, are accessible only to new-age digital investors and considered as a tool of the privileged. Some experts say that crypto assets may never gain the same kind of universal acceptance that gold enjoys.
Another argument in favour of gold is the fact that central banks and other governmental and financial institutions hold large reserves of the asset and endorse it. Cryptocurrencies, on the the hand, are still struggling to find legitimacy in India. The anonymity and decentralised transacting process does not sit well with the government. Whether the investment is a flash in the pan or a sustainable asset remains to be seen.
At the other end of the spectrum, a lot of progressive international businesses such as Tesla, Microsoft, Home Depot, PayPal, Twitch, and Square, among others, are open to accepting payments in cryptocurrencies. Global financial giant Fidelity has recently taken up custodianship for Bitcoin. The security over blockchain ledger, liquidity, and ease of transacting make cryptocurrencies a lot more dynamic compared to gold – that is purely held for ‘defensive’ purposes.
Related: What makes a better wedding gift – gold jewellery or gold bonds?
Should gold or crypto have a place in your portfolio?
Yes, it need not be an ‘either or’ choice. Both gold and cryptocurrencies can act as diversifiers, yet play very different roles in your portfolio. If your allocation towards alternative assets is 5%-10% of the portfolio, you could consider splitting the exposure equally between the two.
Gold has consistently delivered close to 8% returns over the last 50 years. It helps counter inflation and – more importantly – is a price-stable asset. Cryptocurrencies have outperformed every other asset class over the last 10 years but tend to be very volatile. To counter volatility and risk, invest in a basket of 3-5 top crypto assets through a SIP offered by investment platforms or via mutual funds.
Irrespective of your choice, don’t go in with the hopes of getting rich quick. Instead, maintain asset allocation and stay the course to generate long-term wealth. Planning to trade in cryptocurrencies? Here’s how to read crypto charts
