Gold and crypto: when there is strength in numbers

According to the latest data and market trends, gold and crypto are set to go hand in hand in the investment market.

Demand for gold is on the upswing, especially in Asian countries such as China and India. And it’s this recovery that should support gold’s performance in the coming years, as China and India are among the world’s largest consumers of gold. According to the latest data, in 2021 alone, India’s gold imports increased by 45% and China’s by 72%.

Gold and Crypto: is a new alliance about to be born?

And while the gold market has started to turn around again, cryptocurrencies – also known as “digital gold” – are gaining an increasingly fierce foothold. Today, we can no longer speak of a passing phenomenon or ‘fad’. Cryptocurrencies are in fact a trading currency and an investment tool.

Even though virtual currencies are more volatile than gold, the level of volatility is stabilizing, a sign that this asset, once considered ‘unreliable’, is now becoming more mature and ready to take off. However, several issues remain to be addressed, such as transaction costs, opposition from some governments, taxation and the prevention of cyber-attacks.

Assuming (but not conceding) that all these issues are resolved tomorrow – how will crypto affect the investment sector and the gold market?

What do gold and crypto have in common?

Let’s start with the common characteristics of gold and crypto:

  • both have a limited supply (scarcity)
  • they are not part of the traditional financial system
  • they are not burdened by the liability of the counterparty
  • they are both used as trading currencies

But there are also some differences. While crypto is not a physical asset, and its value is dictated by the public that uses it, gold is a tangible asset. And above all a ‘safe haven asset’.

This means that gold was and always will be a safe haven during market crises and times of high inflation.
It is used daily in many sectors, from fashion to aerospace. Its usefulness does not depend on the value that users decide to give it, it is a real asset that has thousands of years of history behind it. Crypto, on the other hand, is much younger.

Today’s market encourages an alliance between gold and crypto

In ancient times, gold and silver were used to pay for all kinds of goods. But there weren’t enough supplies to meet the entire demand – and so the first coins were born. During the Renaissance, many families began to call for an end to gold, as it was considered an archaic source of wealth. Since then, gold and money have accepted peaceful coexistence.

The problem is that interest rates are falling sharply, and the risk of high inflation is just around the corner. Investment strategies that were considered successful up to 40 years ago may no longer be effective, and this climate of uncertainty favors both gold and virtual currencies.
On the one hand, cryptos could attract some investors from the gold market.
On the other hand, gold could have a new function, namely that of stabilizing volatile cryptocurrency funds.
One thing is certain: gold and crypto will go hand in hand from now on. And this new alliance will only benefit the investment world.

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