While 2013 has been a great year for stocks, many analysts believe that next year will not offer the same sort of returns. With continued uncertainty over traditional currencies such as the Euro and when the tapering will start in the US, investors continue to seek alternative currencies and stores of wealth.
The two most talked-about options have entirely different backgrounds. Gold investment has been used as a store of wealth by man for thousands of years, while the Bitcoin marks the new digital age. But which is the best investment opportunity
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Bitcoins are designed to provide an alternative online payment method to PayPal and credit cards. The virtual currency has the added dimension of anonymity – leading to possible money laundering uses. In fact, they were the required currency on the infamous website The Silk Road, a huge global online drugs business which was shut down in October after selling over £1million of drugs a month. One of the major drawbacks of Bitcoin is that it has very limited acceptance in its infancy. Only a very small handful of companies will accept them. The interesting opportunity for investors is that a speculative market has developed for these coins, leading to a huge rise in each Bitcoin’s so-called value.
Both gold and silver prices have been decimated in 2013. The prospects for the next
year have received mixed reviews. While some analysts see continued volatility in the precious metals, others envisage a recovery from the current lows. However, this year was one of the few since the second world war without a 5%+ correction in the S&P index. The bull run now extends to 57 months which means a correction is due which could propel gold upwards next year. Any delay in the tapering of US stimulation could do likewise.
Bitcoins and bullion have several similarities. Essentially they are both a hedge against a weak Dollar. As well as for investment, Bitcoins have the benefit of being useable to purchase items online, albeit for a very limited number of websites. Likewise, gold could be melted and developed into jewellery.
Both are difficult to value and can be volatile. They also share the nature of being in limited supply. The Bitcoin currently only has 12 million units in circulation and has an ultimate cap imposed of 21 million. However, unlike with gold’s supply restrictions, what’s to say that this won’t be breached if demand is there
However, it’s difficult to compare the merits of the two investments because it all depends on what the investor’s motivations and aim are. You have to ask yourself, why am I considering investing in gold or Bitcoins If you’re looking for pure speculation, it seems that Bitcoins are the choice du jour. However, if you’re truly seeking a currency hedge and security then the two asset classes vary significantly.
Gold has been around for thousands of years and is accepted globally. In contrast, Bitcoins have only been around a very short time and are not widely accepted. Bitcoin enthusiasts may claim that over time an increasing number of institutions will accept Bitcoins and now is the time to buy. However, due to the possible illegal uses of the internet currency like money laundering and its links with the drugs and sex trades, there is also a significant chance that Governments may choose to reject its existence altogether.
The most significant difference between the two assets is that gold is a simple, real, tangible asset which you can hold in your hand. It has an intrinsic value. Conversely, there is much confusion over what a Bitcoin really is, if it’s indeed anything! With nothing tangible behind it, it too could become worthless, like some paper currencies. With the frenzied price bubble that’s built, it reminds me of the dotcom bubble where investors ploughed money into cyber investments with nothing tangible behind them – consequently losing everything.
My advice is only investing your money into assets you understand and which have an intrinsic value behind them. Unless of course, you’re willing to stake your hard-earned cash on gambling on red or black.
Daniel Fisher formed physical Gold in 2008, after working in the financial industry for 20 years. He spent much of that time working within the new issue fixed income business at a top tier US bank. In this role, he traded a large book of fixed income securities, raised capital for some of the largest government, financial, and corporate institutions in the world and advised the leading global institutional investors. Daniel is CeFA registered and is a member of the Institute of Financial Planning.