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Investing is a complex and ever-changing landscape, with numerous asset classes available. Two popular options that have gained significant attention in recent years are precious metals and cryptocurrency. Both assets offer unique advantages and disadvantages that should be considered when making decisions.
As diversification is essential to managing risk and maximizing returns, precious metals and cryptocurrency have emerged as potential options for having a well-rounded portfolio. As such, it is important to compare the two assets to gain a better understanding of their potential.
By the end of this article, you should have a wider knowledge of how these assets compare and which may be the best fit for your goals and risk tolerance.
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Precious Metals vs Cryptocurrency: Which is Better?
Determining which is better between cryptocurrency and precious metals is subjective and largely depends on an individual’s investment goals and risk tolerance. Precious metals have proven to be a reliable store of value over time and can offer a stable investment option. Cryptocurrency, on the other hand, is a newer asset that offers high potential returns but also comes with higher risks. It is crucial to consider factors such as market volatility, regulatory risks, and storage costs when deciding between the two. Ultimately, a diversified portfolio that includes both of these assets may offer the best balance of risk and potential reward.
Precious Metals
Precious metals are rare, valuable, and have high economic importance. These are typically used in jewelry, coins, and bullion, and are widely traded in global commodity markets. The most commonly recognized precious metals are gold, silver, platinum, and palladium.
Historical Background
Precious metals have been used as a form of currency for thousands of years. In ancient times, gold and silver were used to mint coins and were accepted as a medium of exchange in trade. The use of gold and silver as the currency continued throughout the Middle Ages and into the modern era, with gold eventually emerging as the dominant monetary standard in the 19th century.
Today, these are still used as a store of value and a hedge against inflation. Gold, in particular, is viewed as a reliable asset during times of economic uncertainty and is often used to diversify investment portfolios.
Advantages of Investing in Precious Metals
Tangible Assets
Unlike stocks or other assets that only exist in digital form, precious metals provide investors with a sense of security, as they know exactly what they own and have direct control over their investment.
Liquidity
Additionally, tangible assets can be easily traded or sold, making them a more liquid investment than other options that only exist in digital form. Aside from this, precious metals have a long history of being recognized and traded throughout the world. As a result, they offer a high degree of liquidity and are easily bought and sold on global commodity markets. Furthermore, tangible assets like precious metals also carry no credit risk, as they are not dependent on any financial institution or government to maintain their value.
Inflation Hedge
Precious metals are often viewed as a hedge against inflation. This is because they tend to hold their value during times of economic uncertainty and can be used to preserve wealth when fiat currencies lose their purchasing power due to inflation. This was seen during the 2008 financial crisis when the stock market experienced a significant decline, and many investors lost a considerable amount of wealth. However, the value of gold and silver increased, since many turn to these as a safe haven asset, driving their prices up.
Disadvantages of Investing in Precious Metals
Little to No Income Generation
Precious metals are typically regarded as a more stable option for long-term investments rather than short-term gains. While they are not typically sought after for generating income, they do offer a safe store of value that tends to hold up well over time. Unlike other assets that may see significant growth, precious metals tend to maintain their value over the long term, making them a reliable choice for those looking to build wealth over time. However, this limited potential for substantial growth means that they are not ideal for those seeking to generate income in the short term.
Storage and Insurance Costs
Holding precious metals requires physical storage, which can be costly. You must also purchase insurance to protect your commodities from loss or theft, which can add to your overall expense.
Complexity
Navigating the world of precious metal investments can be complicated for beginners and involves adhering to various rules and regulations. For example, there may be additional taxes and regulations to consider, such as the fineness standard set by the IRS. This requires gold to have a fineness of 99.5% and silver to have a fineness of 99.9%. This is why research and working with a reliable custodian are required.
Types of Precious Metals
Each type of precious metal has unique characteristics that make it attractive for investment.
Precious Metals Companies to Work with
Choosing the right company to invest in precious metals can be a daunting task, given the numerous options available. To simplify the process for you, we have compiled a list of the top three recommended precious metals companies known for their reputation and customer service.
Augusta Precious Metals (WINNER)
Augusta Precious Metals is a trustworthy precious metals dealer that specializes in offering clients a variety of options to secure their retirement savings. They provide high-quality precious metal products and expert guidance to help clients achieve their financial objectives. However, their services are suitable for those with significant capital, as they necessitate a large initial investment.
#2. Goldco
Goldco is a reputable provider of gold and silver coins or bars that are approved by the IRA and can be held in clients' accounts to diversify their portfolios. They are recognized for their Buy Back Guarantees, which allow the company to purchase assets from clients at the best possible price if they decide to sell. As a result, they are a popular choice for individuals who are risk-averse and looking to protect their retirement savings.
American Hartford Gold is a financial services firm that offers various products, including retirement planning and wealth management services like IRAs. Their primary objective is to assist clients in achieving their financial goals by providing tailored strategies and expert guidance. They provide a comprehensive guide on how to get the most out of your gold and silver assets for free. They are an excellent option for those who are getting started with little capital.
Cryptocurrency
Cryptocurrency is a digital asset that is designed to function as a medium of exchange. It uses cryptography to secure and verify transactions and control the creation of new units. Unlike traditional currency, cryptocurrency operates independently of a central bank and is decentralized, meaning that it is not controlled by any government or financial institution.
Historical Background
The first cryptocurrency, Bitcoin, was created in 2009 by an individual or group of individuals using the pseudonym Satoshi Nakamoto. Bitcoin was created as a decentralized alternative to traditional currency, with the aim of providing users with greater privacy and security in their financial transactions.
Since the creation of Bitcoin, thousands of other cryptocurrencies have been developed, with varying degrees of success. Some of the most popular cryptocurrencies include Ethereum, Litecoin, and Ripple.
Advantages of Investing in Cryptocurrency
Anonymity
Cryptocurrency transactions are anonymous, unlike traditional financial transactions, as users do not need to provide personal information to complete a transaction. This can provide users with greater financial privacy and help to protect against identity theft and fraud.
High Potential Returns
Cryptocurrencies have the potential to provide investors with high returns, as their values can rise rapidly over short periods. For example, the price of Bitcoin in 2017 increased from around $1,000 to nearly $20,000 in just a few months, resulting in significant gains for those who had invested early. However, it's important to note that cryptocurrencies can be highly volatile and unpredictable, and you can easily lose the gains from these assets if the market takes a downturn.
Convenience
Cryptocurrencies offer a high degree of convenience, as they can be used to make purchases and transfer funds quickly and easily. Their transactions can be completed online or using a mobile device, and do not require users to go through traditional financial institutions such as banks. In addition, many online stores and services now accept cryptocurrency as a valid form of payment, making it a more accessible and widely accepted currency
Disadvantages of Investing in Cryptocurrency
Volatility
One of the primary disadvantages of cryptocurrency is its high degree of volatility. The value of cryptocurrencies can fluctuate rapidly over short periods of time, making them a risky investment for many investors. While this volatility can provide opportunities for high returns, it can also result in significant losses.
Security Risks
Cryptocurrencies are vulnerable to security risks, such as hacking and fraud. Because they are not subject to government regulation, there is no centralized authority responsible for ensuring the security of the network. This can make it difficult to protect against security risks and results in the loss of funds.
No Tangible Assets
Unlike precious metals or other tangible assets, investing in cryptocurrencies does not provide you with a physical asset. They exist only in digital form, and there is no guarantee that their value will be maintained over the long term.
Top 3 Types of Cryptocurrency
There are many different types of cryptocurrency available, each with its own advantages and disadvantages.
Comparison Between Precious Metals and Cryptocurrency
This section will explore the similarities and differences between precious metals to help you compare which is better for you.
Stability
Precious metals are known for their stability. Precious metals, especially gold, have been used as a currency and store of value for centuries. This long-standing history has provided investors with confidence in its stability, making it a safe haven asset during times of economic uncertainty. Similarly, cryptocurrencies have gained stability over time, as more people adopt and invest in them. However, their relative stability can be highly volatile and subject to sudden price changes due to market sentiment, regulatory changes, and technological advancements. Aside from this, cryptocurrency cannot be a store of value, making them ineffective during economic instability such as a recession.
Potential Returns
Precious metals have traditionally provided modest returns over the long term, typically averaging between 2-10% per year. On the other hand, cryptocurrencies have experienced extreme price swings, providing investors with the potential for much higher returns. However, the volatility of cryptocurrencies can also result in significant losses, with some cryptocurrencies losing as much as 80% of their value in a single day.
Storage and Insurance Costs
Investors in both precious metals and cryptocurrencies need to consider storage and insurance costs. Precious metals require secure storage, which can be expensive, especially for large amounts. On the other hand, cryptocurrencies can be stored digitally, and there are many online wallets available, which are often free or charge a small fee.
Liquidity
Precious metals are typically less liquid than cryptocurrencies, especially for large amounts, as finding a buyer or seller can be challenging. Cryptocurrencies, on the other hand, are highly liquid, with trading available 24/7 on many exchanges worldwide. However, some coins may have lower liquidity than others, making it harder to buy or sell in large amounts.
Regulatory Risks
Both precious metals and cryptocurrencies face regulatory risks. Precious metals are subject to government regulations, especially regarding mining, trading, and ownership. Changes in regulations can significantly affect their prices. Cryptocurrencies, on the other hand, face regulatory risks in many countries, as many governments are still figuring out how to regulate this relatively new asset class. Changes in regulations can lead to significant price fluctuations, making it challenging to predict the future of cryptocurrencies.
Investing in Precious Metals and Cryptocurrency with IRA
Individual Retirement Accounts (IRAs) are a popular investment vehicle for retirement savings. While traditional IRAs typically invest in stocks and bonds, some IRAs also allow for investments in alternative assets such as precious metals and cryptocurrency.
You can purchase and hold physical gold, silver, platinum, or palladium coins or bars in an IRA by storing them in an IRA-approved depository. The IRS has specific rules and regulations regarding the types of precious metals that are eligible for inclusion in your account and the storage requirements.
Cryptocurrency can also be invested in through an IRA, but the process is a bit different. The IRS allows certain types of cryptocurrency, such as Bitcoin and Ethereum in a self-directed IRA.
Conclusion
In conclusion, both precious metals and cryptocurrencies have their advantages and disadvantages, making them unique investment options. Precious metals have a long-standing history of stability and provide investors with a tangible asset that can serve as a safe haven during times of economic uncertainty. Cryptocurrencies, on the other hand, offer the potential for high returns and the convenience of digital transactions. However, cryptocurrencies are still relatively new and face regulatory and security risks. Thus, they are a more volatile and uncertain option.
Those looking to diversify their portfolio should consider both precious metals and cryptocurrencies, depending on their goals and risk tolerance. It is essential to do thorough research and seek professional advice before investing in either asset class to understand the risks and benefits fully. Ultimately, a balanced portfolio that includes a combination of both precious metals and cryptocurrencies can provide investors with the maximum benefits.