Gold has served as a store of value for thousands of years. Because of this, investors have often used it as a hedging tool against the effects of recessions and inflation, often caused by geopolitical tensions. In light of recent events such as the COVID-19 pandemic and more recently the military crisis between Russia and Ukraine, many investors have sought alternatives to gold and other precious metals as hedging options. As we approach a digitized age, it is a requirement that alternatives to gold are future-proof. In this search for a competitor to challenge gold’s dominance, Bitcoin (Bitcoin) shone the brightest.
A rise in the price of gold is usually an indicator of concern in traditional equity markets, with the current consensus among investors being that gold is currently overbought. Gold prices have reached as high as $2,000 as investors weigh the geopolitical and economic implications of the Russia-Ukraine conflict.
On the other hand, Bitcoin and other cryptocurrencies have increased capital endowments over the same period. Research firm Fundstrat told venture capital buyers invested invested approximately $4 billion into the crypto space in the last three weeks of February 2022. Another $400 million was poured into startups in the crypto space in the first week of March 2022, which they believe could withstand the fallout from the Russia-Ukraine conflict.
The ongoing conflict has meant that both communities have suffered economically. Military activity in Ukraine has resulted in the closure of many businesses, which of course has hurt the local economy. Russia was academic subject to economic sanctions that included restrictions on bank accounts, loss of access to most forms of electronic payment, and devaluation of their national currency. Due to the decentralized nature of Bitcoin, there are no uniform international laws on it yet regulate the cryptocurrency, meaning that BTC retains its value regardless of the location of the holder. Bitcoin is legal in most countries, with some even making it legal tender.
Crises leading to the displacement of individuals have highlighted the potential impact Bitcoin could have on the future. Bitcoin does not require the huge effort required to transport gold. A person would not need to declare their bitcoin when crossing international borders and face the risk of confiscation or theft associated with transporting physical gold.
Bitcoin’s potential utility in times of need increases its appeal to traditional investors. This attraction has also increased thanks to Bitcoin’s recent fall in value. A key advantage of Bitcoin over other cryptocurrencies is mainstream awareness, as it has existed long enough that it has garnered support and recognition, and has even shown some trends in that time.
Stability despite the crisis
The globe COVID-19 pandemic demonstrated for many that Bitcoin can withstand the consequences of the Ukraine-Russia conflict. The pandemic led to a global economic decline in many traditional industries. Coinbase reported $1.4 billion in revenue fiat and cryptocurrency in wallets on their exchange for over 24 hours during the then peak of the pandemic in March 2020.
In the first half of March 2020, investors were quick to notice that Bitcoin managed to hold its value while the traditional equity values around it crumbled. This increased the amount of capital flowing into the cryptocurrency, eventually leading to a then all-time high of around $60,000 in March 2021. The stability Bitcoin has shown during this particular crisis has increased its appeal as a hedging option for those skeptical of gold’s future viability.
Despite the recent explosion in the crypto sector, crypto markets remain in the shadow of traditional market investments in terms of valuations. From the general exposure to Bitcoin’s potential, we have seen this gap closing much faster than originally predicted. Investors have always looked for the most current and viable options for their portfolios.
With the advantages bitcoin has over gold and the certainty of a digitized future, many investors are looking to diversify their portfolios and bitcoin seems to be the best option. This incremental flow of capital into the crypto space can only continue until the floodgates finally open and bitcoin can take its place as the new gold.
This article does not contain any investment advice or recommendation. Every investment and trading move involves risk and readers should do their own research when making a decision.
The views, thoughts, and opinions expressed herein are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Sheraz Ahmed is Managing Partner of STORM Partners and Co-Executive Director of the Crypto Valley Association. Sheraz Ahmed has an insightful understanding of innovation and has advised hundreds of organizations on how to implement modern practices to achieve their business goals. He drives growth, collaboration and integrity across the global blockchain ecosystem.
https://cointelegraph.com/news/after-years-of-doubts-and-concerns-it-is-finally-bitcoin-s-time-to-shine After years of doubts and concerns, it’s finally time for Bitcoin to shine