Inflation Protection: Is Bitcoin as Promising as Gold?

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Cryptocurrencies such as Ethereum and Bitcoin are on the rise. The broker and Forex community see them as the digital equivalent of gold – including inflation protection. However, not all investing experts share this opinion.

There is a mood of optimism in the crypto markets. The second-largest cyber currency, Ethereum, marked a record high at just over 4,600 dollars last year. The undisputed number one among the cryptocurrencies, Bitcoin, remains within reach of its record of just under 67,000 dollars.

The first-ever approval of an ETF on Bitcoin futures in the U.S. has given the entire crypto market a mighty boost in recent weeks. 

Another supporting factor for the Bitcoin chart price is likely to be the currently increasing inflation concerns worldwide. For many Bitcoin supporters, the cryptocurrency is considered “digital gold” for the short-term and also… a promising long-term.

Differences of Crypto and Gold

Unlike gold, cryptocurrencies are intangible and an invention from the decade before last, which remains highly speculative and volatile when you buy or sell them. Compared to physical precious metals, the price of Bitcoins is about four times more volatile. 

Plus, cryptocurrencies are only available digitally. This makes them easy to trade for an Exness broker with Metatrader 5. However, unlike Exness, some websites can be vulnerable to hacking, which raises a big question mark about their legal security. 

Gold, on the other hand, is completely physical, offering security and protection against counterparty default, something no other tradable asset can offer. Moreover, gold has a history that goes back thousands of years: global gold trading has stood the test of time and takes place in a deep and liquid market.

Bitcoin volumes are less certain; different exchanges offer very different data, and decentralized trading is not reliably reported. However, much Bitcoin trading may have grown, it has not been accompanied by a decline in gold trading volumes. 

So, given the current situation, the question of whether cryptocurrencies will replace gold seems almost rhetorical. The gold investment behavior of the last few months and the development of the price show quite clearly: cryptocurrencies will not overtake gold – yet.

Parallels Between Bitcoin & Gold 

Indeed, a closer look reveals some parallels between gold and Bitcoin: for example, in both cases, the creation of new units involves a high energy input. 

On top of that, both Bitcoin and gold have limited availability: Gold deposits on Earth are finite, while Bitcoin’s algorithm sets the upper limit at 21 million units.

In contrast, central banks can create currencies such as the dollar, euro, and yen, so-called fiat money virtually out of thin air. So, is Bitcoin a good inflation hedge, or is it even better than gold?

Experts Divided on Bitcoin

Multiple experts advise every person who is now afraid of losing their savings due to negative interest rates and rising inflation to consider an investment in both gold and Bitcoin. 

An either-or decision is counterproductive. After all, diversification is essential when building a profitable portfolio. 

However, other experts have a different point of view: “Bitcoin has only been around since 2009. Therefore, cryptocurrencies have experienced an almost inflation-free period so far. There are no empirical values in this regard.”

What Good is the “Safe Haven” Gold? 

Gold, on the other hand, has built its reputation as inflation- and crisis-proof store of value over centuries and has survived various wars and financial crises.

Normally, gold would have had to move along significantly more. The yellow precious metal has been fluctuating around the 1,800-dollar mark for months, and since the beginning of the year, it has been down around nine percent.

DAX, Dow, and Nasdaq Know No Inflation Fears 

The stock markets, on the other hand, have surprised positively as a hedge against inflation. The rule used to be that if inflation went above three percent, the markets would run sideways or fall. That rule is kind of blown out at the moment – yet.

In fact, rapidly rising inflation rates have lost their terror for the stock markets for now – probably also because central banks are unwilling to step on the brakes more. 

Both the DAX, Europe’s leading index, and the major U.S. indices such as the Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite are trading at record levels.

The fact that the records in equities and cryptocurrencies currently go hand in hand does not come as a surprise. At the moment, we are seeing a risk-on process – a push into all risky assets. Stocks like Tesla are being bet up, as are cryptocurrencies like Bitcoin and Ethereum.

Bitcoin with No Real Underlying Value 

However, there is a big difference between stocks and cryptocurrencies: For example, stocks are backed by existing values; after all, you are buying a share in a real existing company.

Cryptocurrencies, on the other hand, have no intrinsic value. Bitcoin was developed with the intention of replacing conventional currencies in their payment function. It has not even come close to achieving this.

Bitcoin On Course for $100,000? 

Nevertheless, Bitcoin, Ethereum, and other coins could continue to climb in the short to medium term for now. The underlying factors for the entire crypto market are extremely promising, which is why we expect new all-time highs before the end of this year. 

For most investors, it would come as no surprise if Bitcoin were to crack the magic $100,000 mark by 2024.

This is a scenario that experts can also imagine: “In the past, Bitcoin has covered the distance between the powers of 10, i.e., between 100, 1,000 and 10,000 dollars, very quickly, so the rise to 100,000 dollars could very well still happen soon.


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