Bitcoin vs Gold – Which is the Better Hedge?

Just a few hundred years ago when your balance sheet was running low, you’d go running to your grandfather’s backyard and start digging. You’d be hopeful of finding some precious metals. While some of us were lucky enough to find gold bars safely hidden in a jacket of chest, most of us had to settle with old not-possible-to-exchange-for-money pictures or toys – things that were considered to have more of an emotional value than a commercial one. But that time is now gone, and we are living in 2021, where the fears of inflation are gripping investors and traders alike. With hot discussions revolving around bitcoin as a new asset class amongst investors, the real question is: should we put our money in bitcoin or gold? Pandemic The global pandemic plummeted the prices of the S&P Index in 2020. Unsurprisingly, many investors who had put their money lost it on account of an emotional withdrawal. For some, it was necessitated by a need to recuperate from the financial losses that they were suffering from. Source. Compare that with the meteoric rise in the same period of bitcoin. Source. Bitcoin emerged as a go-to asset for people when the S&P was suffering. Let’s have a look at how gold was performing. When you compare the three it is evident that people took most of their money away from the more traditional classes of investment to more dynamic and well-known ones. Bitcoin had been hiding as the underdog for several years and 2020 was just the right push it needed to resurface and show that it could be considered an asset class. Moreover, a significant amount of attention that bitcoin has garnered has come from the more tech-savvy millennials who tend to get excited at any innovation at a drop of a hat. Out of these those who have an interest in financial knowledge are slowly galloping towards investing in bitcoin as they consider it to be the exact anti-boomer and style-statement investment. For them, its more to do with short-term massive gains than long-term sustained profits. Although bitcoin has had an almost 200% increase year-over-year since its inception, conservative investors are still concerned about its utility. Technology It is the technology behind bitcoin that makes it stand apart, and the history behind gold that gives it importance. Blockchain is considered to be immutable and decentralized. These very factors give it a governments-are-barred importance and win the hearts of a generation which for most part has been upset with the way several things have been handled by governments in general. Gold has been around for thousands of years and has served a purpose – once a currency and then an investment. Because of its long-drawn history, it enjoys a community of investors who believe that gold will only do them good in the long run. Talking about communities, bitcoin also enjoys the backing of a suave tech-impassioned community that is wholly invested in the idea that bitcoin and the technology behind it – blockchain – is indeed the future. Inflation Inflation has often done good to a country than damage, however in this case it is difficult to ascertain its impact on the market. The wholesale price index (WPI)-linked inflation saw a rise to 10.5% in April 2021. Retail inflation peaked at 6.3% YoY in May’21. This implies that the bigger investors who have massive portfolios are more likely to invest their money in assets that will ensure that their principle remains secure, along with getting some number of profits. However, for that to happen they might have to break away from the traditional investing ideas and think about hodling bitcoin for a while. Closing Thoughts While both gold and bitcoin have seen consistent price increases over the past few years, it is evident that both have a community of investors driving and supporting the two asset classes. For those who wish to understand cryptocurrency might be tempted by tall claims of decentralization and a unified world. For the conservatives, the decision to jump to an asset class which is still in its nascent stage and whose prices are controlled by whales is something of a deterrent.