In times of economic uncertainty, investors look to protect their wealth by buying assets that can help protect their wealth. They’re looking in the first instance for assets that won’t lose value during times of crisis, as asset loss can be a huge obstacle to overcome. Just think of the many investors who lost money in 2008 and didn’t make it back for years.
But investors also want to invest in assets that can gain value during times of difficulty. While stocks and bonds may lose value during financial crises and market crashes, there are almost always assets that gain value during a crisis. It’s just up to you as the investor to find those assets.
Traditionally, investors have sought safety in gold and silver, the safe haven assets that have served investors well for centuries. But with modern technological developments, cryptocurrencies have started to become a more popular investment asset and even a safe haven asset, especially for younger investors.
Cryptocurrencies such as Bitcoin were created as a direct response to the actions of the Federal Reserve and its policies of quantitative easing during the 2008 financial crisis. They were intended to overcome many of the problems with fiat currencies such as the US dollar, in particular the ability of a central issuer to keep inflating the money supply. In that way, Bitcoin aimed to become a type of digital gold, having no central authority creating it and instead being “mined” by anyone who wanted to try.
The popularity of Bitcoin and other cryptocurrencies has grown exponentially over the past decade, along with their price. But as a relatively new asset, Bitcoin and cryptocurrencies have had their share of growing pains, including significant price volatility. The next real financial crisis will demonstrate whether investors really trust cryptocurrencies to protect their wealth, or whether gold and silver will remain the safe haven assets of choice.
Bitcoin vs. Gold
Cryptocurrency enthusiasts have loved Bitcoin’s performance this year. At one point Bitcoin reached an all-time high price of $64,000. Unfortunately, a series of confluent factors have combined to push the price down significantly since then. At one point a few days ago, Bitcoin was down about 50% from its all-time high. While it has recovered since then, and Bitcoin is still up for the year, that volatility, unpredictability, and uncertainty have made many investors wary about trusting their wealth to Bitcoin.
Collapses in price aren’t uncommon among cryptocurrencies, and Bitcoin has certainly seen its fair share of rises and falls. But the most recent price drops have been the result of increasing uncertainty about Bitcoin’s long-term viability.
One factor that has had investors on edge is recent discussion from Elon Musk about Bitcoin’s energy usage. Every so often Bitcoin undergoes a “halving,” in which mining difficulty increases and the reward to miners is cut in half. This is built into the Bitcoin algorithm so as to decrease the number of bitcoins created until all 21 million coins are mined next century. But by increasing the difficulty of mining, it requires more energy usage.
Bitcoin mining already takes up a significant amount of electricity, and Musk and others have wondered publicly if that continued increase in energy consumption is sustainable or not. Musk even went so far as to stop taking Bitcoin as a payment for Tesla cars, a major step backward for Bitcoin’s acceptance. That announcement led to yet another drop in the Bitcoin price.
Developments in China have also put investors on edge. China’s government has restricted activity in cryptocurrencies for years. Now that it has created and introduced its own central bank digital currency, the digital yuan, it has even more incentive to crack down on private cryptocurrencies such as Bitcoin.
With the Chinese market remaining important to cryptocurrencies despite government restrictions, any further crackdown on cryptocurrencies within China would reverberate throughout the rest of the world. And indeed, we’ve seen that happen, as cryptocurrency prices have fallen across the board as a result.
What is happening now is that investors seem to have begun rotating out of Bitcoin and into gold. The volatility of Bitcoin and the massive price drop have undoubtedly frightened many investors, particularly large institutional investors, who now want to find safety and security in what they know, namely gold.
What Does the Future Hold?
If this trend continues, and more and more investors transition away from cryptocurrencies towards gold, it should provide increased impetus to the gold price. While many investors have flocked to cryptocurrencies for the great gains that they can make, with explosive growth also comes the potential for tremendous losses. And at a time when investors don’t want to sustain losses, the stability of gold and silver could provide the comfort that investors are looking for.
That isn’t to say that gold and silver can’t also make gains during crisis. After all, both gold and silver averaged annualized gains of 30% throughout the stagflation 1970s. And in the aftermath of the 2008 financial crisis, gold nearly tripled while silver more than quintupled. That kind of performance should make anyone happy, particularly when conventional assets like stocks and bonds are losing money or struggling to get back to pre-crisis levels.
That’s good performance too for those who are nearing retirement and who need to maintain their wealth ahead of retiring. The last thing you want just before retirement is to see your hard-earned assets lost to forces outside your control.
Thankfully there are ways to protect your assets against that kind of loss, and relatively simple ways to protect your retirement savings with gold and silver. With a gold IRA, for instance, you can invest in physical gold coins or bars while still enjoying the same tax benefits as any other tax-advantaged retirement account. You can even roll over or transfer assets from existing retirement accounts into a gold IRA, allowing you to protect the assets you’ve worked so hard to accumulate. And of course, you can do the same for silver as for gold, by opening a silver IRA.
If a precious metals IRA sounds like something you would be interested in, contact the experts at Goldco today to learn more. With rising inflation, an economy that remains weak, and gold starting to rise in price again, now is the time to start thinking about protecting your assets with precious metals. Don't wait until it’s too late – call Goldco today.
Trevor Gerszt is America's Gold IRA Expert, CEO of Goldco Precious Metals, and holds a position on the Los Angeles board of the Better Business Bureau.
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