Gold vs. Digital Currencies: The Case for Tangible Assets in Modern Investment Portfolios

The allure of potential fast profits has drawn more and more investors to digital currencies over the last decade. According to a market sizing report published by Crypto.com in January, the number of cryptocurrency owners globally grew 34% in 2023, from 432 million in January 2023 to 580 million in December 2023. Just seven years earlier, in 2016, the number of people holding cryptocurrencies was just 5 million.

It is no surprise that these digital assets are so popular. Since 2016, Bitcoin (BTC), the original cryptocurrency, has exploded in value from around $435 to $62,916 at the time of writing. Ethereum (CRYPTO: ETH), meanwhile, was worth less than a dollar in early 2016 and today is worth over $3,000 and nearing $3,500.

However, while this relatively new financial ecosystem has matured significantly in recent years, it is still seen as highly speculative. BTC, ETH and countless other digital coins continue to experience extreme volatility, which, in addition to regulatory uncertainties, makes them a high-risk component of any investment portfolio. As digital currencies continue to rise, is there a place for traditional, tangible assets like physical gold in a diversified investment portfolio?

Digital currencies are characteristically unstable and can experience wild price swings. BTC, for instance, crossed over $64,000 in November 2021, only to plummet to below $17,000 around a year later. By March 2024, the asset had hit a new all-time high of almost $75,000. Smaller coins, such as Dogecoin, have seen even sharper oscillations in value, often caused by Elon Musk’s tweets. These extreme fluctuations are caused by an array of factors, including a limited supply, and digital currencies are particularly prone to media hype and investor sentiment. Furthermore, without any intrinsic value, some, including Warren Buffet, see no long-term value in cryptocurrencies.

In contrast, buying physical gold is an investment in a more stable and tangible asset. While gold definitely can often be somewhat volatile in the short term, the precious metal has proven to be a reliable store of value over long periods of time, even in periods of economic uncertainty, and can therefore act as a hedge against the volatility of digital currencies.

While cryptocurrencies have only been around for a decade or so, gold has a history spanning millennia and a record of resilience in economic downturns. During the 2007-2008 global financial crisis, for example, investors flocked to safe-haven assets, causing gold to double in value between 2007 and 2012 while many other asset classes faltered. Similarly, the price of gold reached all-time highs during the Covid-19 pandemic. As a safe-haven investment, gold prices also hit new highs in December 2023 and in 2024, driven by geopolitical turmoil among other factors.

Conversely, the performance of cryptocurrencies in a sustained recession remains uncertain, and it is unclear how these digital assets would react under such circumstances.

Governments around the world are beginning to work out regulations for digital currencies, but their lack of regulation thus far has led to them being dubbed the “Wild West” of financial markets. This lack of governmental oversight is part of what makes crypto so exciting, but also risky and vulnerable to hacking. Over $1.7 billion in cryptocurrency was stolen in 2023, and $3.8 billion was stolen in 2022.

While new regulations could improve the market from hacks and data breaches, they can also drastically affect the value of digital currencies. For instance, BTC and other digital coins plunged after reports of China’s crackdown on cryptocurrency mining.

In stark contrast, physical gold offers a much higher level of security and stability. It is immune to many of the risks associated with digital currencies. Once purchased, gold can be securely stored, eliminating the threat of digital fraud. By adding gold to their portfolio, investors can also avoid the regulatory uncertainties linked to digital currencies.

Digital currencies can offer high returns, but prudent investors would be wise to balance their portfolio with physical gold. The stability and security of gold can offset the risks of cryptocurrency assets and ensure a more well-rounded investment portfolio. Moreover, with analysts predicting that gold will continue to rise for the remainder of the year, now could be the perfect time to buy.

As a trusted precious metals dealer with a proven track record, Priority Gold can help novice and experienced investors invest in gold through its expertise, resources and guidance.