Gold vs cryptocurrency: Where should you put your money?

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Gold, traditionally, has been a favourite go-to-asset for Indian households. India, along with China, leads gold (jewellery) consumption year-on-year.

Key characteristics of gold that make it attractive for Indians include 1) Assured year-on-year growth beating inflation (investment), 2) ability to take short term cash loans (borrowing) and 3) ability to sell for cash (liquidity). Additionally, gold can be acquired without the need of a bank intervention.

Cryptocurrencies, a purely digital asset, are an alternate class of investment assets that have sprouted and surged in recent years. Bitcoin, the lead asset and often called as Gold 2.0, have doubled in value since the beginning of 2021 amid a strong bull run that is set to extend till 2022. India has more than 7 million users currently who have invested in the same. Investing in cryptocurrencies is legal while the Government is deliberating a formal regulatory approach towards the same.

Given the increasing adoption of cryptocurrencies in recent years, it is tempting 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 a few days back and is still going strong. While worries about speculation and volatility in cryptocurrencies exist, investors who have patiently waited long-term with assets such as Bitcoin and Ethereum have got better yields compared to other assets in their portfolio.

Against this backdrop, multiple altcoins (alternative cryptocurrencies) have also bloomed, each with its own set of real world use cases. However, they are yet to reach scale globally and hence remain volatile.

Increasing global adoption by institutional investors and companies such as Visa, PayPal and Tesla means that the ecosystem will continue to 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 Rs 100 post a quick KYC process.

Liquidity and borrowing capacity

Cryptocurrencies are easily interchangeable between one another and with Indian rupee. Unlike physical gold, the digital cryptocurrencies can be traded in International exchanges as well. This enables a global market that is 24×7 and not restricted to the bank timings in India.

Via a registered Indian exchange, investors can easily deposit INR to buy cryptocurrencies and withdraw to INR when required. Cryptocurrencies, overall, are more liquid compared to Gold given the ease of selling them with a click of the button.

In terms of borrowing, Gold currently is more convenient. Bank and other unregistered lenders are often willing to give cash in quick time. There are products that let you stake your crypto portfolio for interests (much like Fixed Deposits) but they are not regulated by RBI or the Indian government.

Security

Gold (physical) has to be stored at home or in bank lockers. They can be burden on occasions when transporting between cities etc.

Cryptocurrencies are stored in digital wallets that often have two-factor authentication. They can also be secured in physical wallets which need similar safe keeping as physical gold. There are some global companies that insure part of your crypto portfolio. There are cryptocurrency firms that for allow users to store cryptocurrencies 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 convenience.

Grow your crypto portfolio steadily and be patient

If you believe in the growth pegs above and if the past is an indication, cryptocurrencies are definitely a class of assets worth investing in for long term. Given the familiarity, Gold continues to be a key driver of investments along with bank deposits.

Cryptocurrencies, on the other hand, represent the highest growth class with great liquidity that suit Indian households. While you can’t display them like jewellery, you can always gain wealth and get a Lambo (Lamborghini in the crypto lingo).

A disclaimer — though, we suggest not to have more than 20% of your portfolio on cryptocurrencies at the start, this allocation can vary depending on your risk appetite.

(The writer is co-founder and CEO of Giottus Cryptocurrency Exchange. Views expressed are personal)