Can cryptocurrencies emerge as the ‘new gold’? Exploring their future as safe-haven assets

The pandemic period led to the downfall of the world economy, labelling it uncertain. Banks throughout the world have been struggling to keep inflation under control since 2021, when it skyrocketed due to the COVID-19 outbreak. Such times of uncertainty often compel people to resort to trusted assets that help them re-establish their stability and safeguard their holdings’ value. These investments, known as “safe-haven assets,” are generally expected to maintain their value during periods when fiat money and equity stand at an increased risk of devaluation.

For ages, gold has been recognised as an everlasting source of value, offering stability and security, notably amid uncertain periods. In contrast, cryptocurrencies, especially Bitcoin, have emerged as one of the most popular digital assets globally. It runs on a decentralised network and is resistant to government intervention. Despite phases of intense volatility and dramatic price declines, Bitcoin’s overall trend has been upward throughout its existence. This has further generated curiosity as a possible long-term store of value to hedge against inflation and market instability. Moreover, Bitcoin is also called “digital gold”, grabbing the attention of both investors and organisations due to its decentralised structure, finite quantities and capacity to facilitate seamless transactions globally.

Which is the Better Investing Option- Gold or Cryptocurrency?

Gold is a tangible asset that can be physically handled. It is extremely liquid globally and can be quickly purchased, sold or exchanged. Its extensive history of regulatory frameworks makes it a reliable investment. However, holding gold necessitates physical protection, such as vaults or safes and incurs storage and insurance fees. Although miners extract fresh gold every year, the process is growing increasingly complicated and expensive. On the other hand, investors can hold cryptocurrency, notably Bitcoin, as a digital asset that is coded on the blockchain and stored in a digital wallet. It has strong liquidity and is becoming increasingly popular in financial markets. According to Statista, Bitcoin has a fixed quantity of 21 million coins, appealing to various investors, especially the younger demographics.

Furthermore, cryptocurrencies work differently from the existing monetary system. Their decentralisation indicates that they are not subject to any central authority’s jurisdiction, and their monetary dynamics are determined by algorithms rather than human judgements. These digital assets are intended to operate differently from traditional financial instruments, reflecting the asset class’s founding ambition of creating a system free of the potential challenges associated with conventional finance. Following this, Statista has projected that the cryptocurrency revenue will reach USD 56.7 billion by the end of this year, indicating the increasing interest of investors in digital assets.

Wrapping Up

In a world where the global economy is weighed down by conflict, pandemics and high inflation, the need for assets that increase people’s chances of keeping the value of their savings and investments is acute. The discussion over cryptocurrencies’ potential as a safe-haven asset is ongoing. Given its inherent features and robust market performance amid recent market turmoil, many individuals now see Bitcoin as a new, inventive asset for holding money and insuring against economic instability. Whether cryptocurrencies can truly emerge as the “new gold” will depend on how they evolve to address their existing limitations while capitalising on their strengths.(The author is CEO at Koinpark)(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)