Crypto Market Plunges In Early 2022, Should Investors Look Towards Gold?

Since early November, the Bitcoin BTC/USD price meltdown has already wiped off more than $1 trillion in market value. According to Coin Metrics data, Bitcoin went below $34,000 yesterday morning and is now trading around $36,900. Ether ETH/USD is likewise falling in value, with a current price of roughly $2,450.

By market capitalization, the two most valuable cryptocurrencies have fallen around 50% from their all-time highs in November. Bitcoin hit about $69,000, and ether topped $4,878 after a rally on November 10. Other altcoins followed suit and plummeted. The question that keeps coming up is whether it is time for investors to turn to traditional gold. Since their inception, cryptos have established themselves as an investment asset and are often tagged as the New Gold.

Bitcoin Competes with Gold as "Store of Value"

Bitcoin will overtake gold in market share in 2022 as digital assets become more broadly used, according to Goldman Sachs analyst Zach Pandl in a research note to clients. Goldman Sachs claims that bitcoin has a 20% share of the "store of value" market, citing its $700 billion market capitalization vs. the $2.6 trillion worth of gold held as an investment.

In a list of 2022 forecasts, Goldman Sachs stated that Bitcoin would "most likely" become a more significant share over time. According to the note, Bitcoin's price would reach slightly over $100,000 in a hypothetical scenario in which it captures 50% of this market.

However, after the recent crypto crash, Bitcoin struggles to recoup and gain ground. Notably, it had hit its all-time high of $69,000, and at the moment, investors don't have as much confidence.

Turning to Gold

JPMorgan research researchers indicated in May 2021 that institutional investors were exiting bitcoin and reverting to gold for the first time in six months.

Gold has historically performed well during market corrections because it preserves its worth; its price keeps reasonably steady, then tends to grow as investors shift away from stocks and toward gold if a recession is imminent. As a result, it can be used as a hedge against market corrections or recessions.

Not all investors went to Bitcoin during the Covid-19 outbreak; many stuck to established techniques and moved to gold. In this regard, the price of gold has increased from less than $1,300 in late 2019 to approximately $2,100 in mid-2020. Its price fell through 2021 as economies gradually recovered, although it remained higher than pre-pandemic recession levels.

Tokenized Mining is Rising

As more traditional sources of project money become less accessible due to challenging financial conditions, miners are being forced to become creative with their financing options. Some investors may consider tokenized financing based on the intrinsic value of a mineral deposit or its extraction to be safer than cryptos such as Bitcoin, which are not backed by a tangible asset.

Zambesi Gold, a mining firm focusing on acquiring and developing selected mining assets, considered this. This booming business is supported by actual gold, real people, and mining activities, all backed by real value.

Several factors lead to the failure of mining houses, including overhead costs, debt, finance, lack of control over commodity prices, and non-compliance. Zambesi's business model allows all mines to own, participate, manage, and define profitability. Most mines lack these attributes.

Volatility is an Issue for Bitcoin

In a discussion involving Bitcoin and Gold, volatility has to be mentioned somewhere in between. Bitcoin has historically been influenced by the media, investor sentiment, regulatory measures, and enthusiasm. Investors may become panicked and make hasty judgments due to news from the digital currency world, propelling Bitcoin's price rapidly upward or downward. Because of the reasons stated above, gold does not have this volatility, making it a potentially safer asset.

Several alternative cryptocurrencies have been launched to provide more excellent stability than Bitcoin. These coins are called "stablecoins" since their values are tied to fiat currency or another stable asset. Tether USDT/USD, for example, is connected to the value of the US dollar.

Differences Between Regulation in Bitcoin and Gold

Gold's established trading, weighing, and tracking system is flawless. It is challenging to steal or forge, and it is also carefully regulated. Many countries prohibit crossing borders with gold unless you have regulatory clearance. When it comes to gold investing, you should typically only acquire it from certified dealers and brokers; one caveat being that you should only buy actual gold if you can safely keep it.

Because of its encrypted and decentralized system, Bitcoin is also impossible to steal and forge. It is typically lawful to use across national borders, with a few exceptions. However, the regulatory framework to assure user safety is not yet in place; additionally, the anonymity of cryptocurrencies makes it difficult to govern.

Bitcoin vs. Gold

In the debate of whether Bitcoin is better than gold or vice versa, it is the investor's choice on which direction to lean in depending on your goals. However, some pointers can help you reach the decision. 

Gold is a relatively rare metal. Bitcoin is rare compared to other cryptocurrencies, while gold is rare in comparison to other metals. They are both rare in their respective fields. Bitcoin, like gold, has become a popular alternative investment for specific individuals. It has a wide range of applications and can be a good investment if utilized correctly.

Final Thoughts

Gold and Bitcoin both have major advantages over fiat currencies because neither can be debased or diluted. It is possible for bitcoin to vanish altogether through hostile legislation one day. We have already seen some bitcoin derivatives being banned. It has also been difficult for companies that have tried to start crypto, such as Facebook. 

Note that Gold has held its value for centuries, whereas Bitcoin is a more recent form of investment that certainly is receiving a lot of hype. Whether bitcoin will offer the same level of longevity is highly questionable. Furthermore, Gold has one-fifth the volatility of bitcoin, and doesn't face the same competition risk.

This article was submitted by an external contributor and may not represent the views and opinions of Benzinga.