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Is Investing in Cryptocurrency Better Than Investing in Gold?
Gold, traditionally, has been a safe haven for Indian households. India, along with China, leads Gold (jewelry) consumption year on year.
Essential characteristics of Gold that make it attractive for Indians include inflation hedge (investment), ability to make short-term cash loans (borrowing) and ability to sell for cash (liquidity). Additionally, banks are not needed to acquire the yellow metal.
Cryptocurrencies, a purely digital asset, are an alternate class of investment assets that have sprouted and surged in recent years. Bitcoin, the lead asset in terms of market cap and often called Gold 2.0, has surged in value since the beginning of 2021 amid a strong bull run that could extend until 2022. India has more than ten million users currently who have invested in the same. Investing in cryptocurrencies is legal, while the Government is considering a regulatory approach towards the same.
Given the rising adoption of cryptocurrencies in recent years, it is intriguing to compare and appraise both assets and set the conditions upon which an investor may choose one over the other.
Investment
Bitcoin reached a record high of $65,000 (INR 48 lacs) earlier this year but only to retract back to $30,000 this May fuelled by China's mining crackdown. However, Bitcoin has been making steady progress towards it's all time highs again as it continues to attract investors all over the world. While worries about speculation and volatility in cryptocurrencies exist, investors who have firmly remained long-term with assets such as Bitcoin and Ethereum have better yields than other assets in their portfolios.
| Asset | Value of portfolio today if INR 1000 was invested | ||
|---|---|---|---|
| 1 year back | 3 years back | 5 years back | |
| Bitcoin | 4159 | 6640 | 83549 |
| Ethereum | 8094 | 12441 | 303270 |
| Gold | 920 | 1520 | 1382 |
| Silver | 849 | 1699 | 1267 |
All numbers in INR. Data as of 1st Sep 2021.
Source: Giottus, coinmarketcap.com and goldprice.org
Against this backdrop, multiple altcoins (alternative cryptocurrencies) have also flourished, each with its own set of real-world use cases. However, they are yet to reach scale globally and hence remain primarily volatile.
Rising global adoption by institutional investors and companies such as Visa, PayPal, and Tesla means that the ecosystem will grow. Today, compared to a market capitalization of $10B for Gold, the crypto market is $2B. In five years, we expect the gap to close significantly.
Given the potential to grow, Bitcoin as an investment is a definite winner. Through a registered exchange, Indian investors can acquire Bitcoin or any other cryptocurrency and for as low as INR10 post a quick KYC process.
Security
Gold (physical) has to be stored at home or in bank lockers. They can be a burden on occasions when transporting between cities etc. No insurance product caters to the storage of Gold, and hence it is always a risk to households.
Cryptocurrencies are stored in digital wallets that often have two-factor authentication. They can also be secured in physical wallets, which need similar safekeeping as physical Gold. Some global companies insure part of your crypto portfolio. There are crypto firms that allow users to store assets with insurance on their cold wallets.
Overall, there is no clear winner in terms of security between the assets. Investors can prefer one approach over the other depending on their service.
Liquidity and Borrowing capacity
Cryptocurrencies are easily interchangeable between one another and with Indian Rupee. Unlike physical Gold, international exchanges allow customers to buy digital assets. A global market that is 24x7 and not restricted to the bank timings in India opens up many opportunities for investors and traders.
Via a registered Indian exchange, investors can quickly deposit INR to buy cryptocurrencies and withdraw to INR when required. Overall, Cryptocurrencies are more liquid than Gold, given the ease of selling them with a click of the button.
Banks and other unregistered lenders are often willing to give cash in quick time in exchange for Gold. Some products even let you earn interest on digital assets.
Grow your crypto portfolio steadily and be patient
If you believe in the growth markers above and if the past is any indication, cryptocurrencies are a class of assets worth investing in for the long term. Given the familiarity, Gold continues to be a key driver of investments along with bank deposits.
On the other hand, cryptocurrencies represent the highest growth class with significant liquidity that suits Indian households. While you can't display them like jewelry, you can always gain wealth and invest some in Gold again if that's your thing.
A disclaimer, though, we suggest not to have more than 5% of your portfolio on cryptocurrencies at the start. This allocation can vary depending on your risk appetite.
About the author:
Vikram Subburaj is the Co-Founder and CEO of Giottus Cryptocurrency Exchange
