Cryptocurrencies like Bitcoin and Dogecoin have created a lot of buzz globally in recent times, and many Indian investors have also jumped on the bandwagon. Meanwhile, gold continues to move sideways.
Of late, Bitcoin has gained acceptance as a store-of-value investment because, like gold, it tends to work as a hedge against currency devaluation and volatility, say crypto market watchers.
Gold pundits frown upon such claims. “The charm of gold has not diminished any bit and it has, in fact, increased after generating double-digit returns in last one year,” said Anuj Gupta, Vice President – Commodity and Currencies, IIFL Securities.
Gupta agrees that both Bitcoin and gold enjoy an inverse relationship with the US dollar and are often being bought to hedge against the greenback.
With the advent of corporate investors such as Elon Musk, the cryptocurrency market is no longer in the realm of only technologists and millennials, who got charmed by it some 10 years ago.
Kshitij Purohit, Lead Commodities & Currency at CapitalVia Global Research, said gold is obviously the first choice for the Indian investor as it has a long history as an investment avenue besides its use as jewellery, while cryptos are new and there is still no clarity about their rules and regulations. “It is still not accepted widely in India,” he said.
Others believe the frenzy over cryptocurrency is posing a major threat to gold. “Gold has lost ground, as investors have flocked to cryptocurrencies to ride the momentum trade. Cryptocurrencies definitely have more appeal,” they said.
Those who back virtual currencies are sticking with them strongly. They find economic value in blockchain technology, which is now becoming more mainstream. Some have nicknamed Bitcoin the ‘digital gold’ due to the scarcity of the coin.
Monark Modi, CEO of cryptocurrency trading platform Bitex, said that before investing in a virtual currency, one must check the purpose the cryptocurrency is aiming to achieve, its vision and which community it serves.
“Bitcoin has a vast acceptance due to its practical value and adoption by various international entities and institutions,” he said.
The rise in gold prices has been very impressive over the past 50 years, accompanying inflation and reflecting higher production costs, as mines get deeper.
In comparison, Bitcoin has been witnessing an eye-popping rally over the past decade, rising from $0.08 at its launch in 2008 to trade above $60,000 till recently.
However, the corrections in this cryptocurrency have been equally steep, and further sharp swings cannot be ruled out.
“Cryptocurrencies have delivered better returns than other asset classes, but one must not lose sight of the sharp volatility,” Purohit said. “Aggressive traders can go for crypto investing to get the better returns,” he said.
Other experts say cryptocurrency can indeed be a good hedging option. But abrupt volatility, lack of pure fundamentals and the anonymity aspect add to the more speculative bets, making it less safe than gold.
“There are not concrete fundamentals backing for the Bitcoin, compared with gold,” said Gupta of IIFL Securities.
“So traders are using Bitcoins mainly for trading and speculations. But gold is always for investment,” said Purohit of CapitalVia. He said one must understand this risk appetite before making a bet in the crypto market.
“The higher returns always look lucrative and attract speculation in the assets but higher returns always along with higher risk,” he added.