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Tuesday, July 5, 2022

Does Bitcoin offer a better hedge against inflation as compared to gold?

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Bitcoin, the world’s largest and oldest cryptocurrency, is making headlines for a variety of reasons, ranging from predictions about the digital currency’s future to concerns about its vast electric power requirements and volatility.

Bitcoin had a record-breaking year in 2021, surpassing its previous all-time high and gaining $545 billion in market capitalization. As per the research by The Block, the whole crypto market capitalization achieved a record $3 trillion after recrossing $1 trillion in January and $2 trillion in May, with crypto assets reaching new market price highs.

Bitcoin, like gold, isn’t connected to anyone’s currency or economy. It isn’t also dominated by a small number of enterprises or interests. It is, rather, a worldwide asset class that reflects global demand.

Bitcoin vs. gold: Precious yellow metal and bitcoins are two assets that are not governed by any government. Because gold and cryptocurrency are restricted assets, their prices rise and fall in response to demand and supply. By the way, cryptocurrency has outperformed gold in the expression of regulatory uncertainty, there is a debate about whether gold will lose its luster in the face of bitcoins.

Manoj Dalmia, Founder, and Director of Proaasetz Exchange remarked of the parallels between gold and cryptocurrencies, “Cryptocurrencies, like gold, are a finite digital commodity, as there will never be another bitcoin issued. In terms of shortage, bitcoins are similar to gold. Unlike fiat money, where bank deposits can devalue owing to government-managed inflation, bitcoins and gold are not controlled by the government.”

According to Vinshu Gupta, Founder & Director, Nonceblox Blockchain Studio, “cryptocurrencies may give gold a run for its money in the asset market.” “For a long time, gold has served as the de facto inflation hedge. It is possible that it will be stolen, that it will need to be stored, and that it will require maintenance. It used to be one of the few safe investments for old money, but that is no longer the case. Bitcoins have begun to be viewed as future gold by investors. It’s completely decentralized, doesn’t require any storage or maintenance, and can’t be stolen. Calling it a hedge isn’t quite accurate; I’d call it the most profitable asset on the face of the planet and Mars.”

Cryptocurrencies’ median yearly RoI (Return on Investment) is 408 percent, according to Vinshu Gupta. “When compared to a 5-7 percent inflation rate, bitcoins not only hedge your position but also generates wealth for future generations,” Vinshu Gupta remarked.

When asked about the advantages of cryptocurrencies over gold as a hedge against inflation, Amit Gupta, MD of SAG Infotech, said, “Many institutional investors appear to be moving to bitcoins, maybe seeing it as a better investment alternative than gold, particularly in terms of inflation protection. Coinbase stated in its first-quarter report in April that it had hosted $335 billion in trades in the previous quarter, with more than $215 billion coming in from 8,000 institutional investors.” According to Amit Gupta, these wealthy investors were urged to invest in bitcoins and other cryptocurrencies because of their intrinsic inflation protection.

When it comes to cryptocurrencies vs. gold, the odds are stacked in their favour. Manoj Dalmia of Proaasetz Exchange outlined four characteristics that make bitcoins not only comparable to gold, but even superior to it:

1] Scarcity: Bitcoin is extremely uncommon. It can’t be made at will because there are only 21 million of them and no one can make any more. That means it can’t be controlled or faked by any government. No one will be able to manufacture more gold that is viable. Gold’s scarcity fluctuates depending on how much effort you put into finding it.

2] Longevity: Both bitcoins and gold are nearly indestructible. Bitcoins will be used as long as the internet exists. Gold has been used to manufacture jewelry, trade, and other things for as long as anybody can remember.

3] Divisibility: Bitcoin can be divided into individual satoshis, with one BTC consisting of 100,000,000 satoshis. Gold cannot be divided as readily or accurately as silver, but lesser denominations can be created.

4] Difficult to deceive: Bitcoin and gold are both difficult to counterfeit and copy. Bitcoin is easily identifiable and impossible to forget. Gold is easily identifiable, yet in some cases, it must be examined for purity.

Bitcoin, like gold, is long-lasting, easily interchangeable, secure, and limited. Bitcoin, on the other hand, is portable, transferrable, and perhaps more decentralized than gold. Sovereign states such as the United States, China, Germany, and other European countries control the majority of the gold supply. Anyone in the globe, theoretically, can keep and secure their Bitcoin much more readily than gold.

However, Vinit Khandare, CEO and Founder of MyFundBazaar, emphasized the risk component associated with cryptocurrency investments, saying, “Bitcoins are a decentralized asset class that is not supported by any government. These digital coins are riskier and have higher volatility. Furthermore, bitcoins lack sufficient historical data to establish a long-term knowledge of their genuine relationship with inflation.”

#bitcoin #bitcoinnews #PUSH #EPNS

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