Key Points
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Everyone wants to hold gold right now.
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In contrast, Bitcoin and Ethereum are out of favor.
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Those cryptocurrencies will both likely grow a lot from here.
Gold’s price recently clearing $5,190 an ounce was an undeniable sign that investors everywhere are paying up for what they think is a safe asset. When that happens, safety gets awfully expensive, often to the point of making riskier assets with lower valuations look a lot more appealing.
On that note, many leading cryptocurrencies are currently priced a lot lower than in the recent past. Making a simple crypto portfolio centered around the “harder” assets might be a better option than piling into gold while it’s richly valued. Let’s explore that possibility and figure out how to implement it properly.
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Bars of gold embossed with the Bitcoin logo.
Image source: Getty Images.
Gold is pricey and volatile
Gold’s appeal is that it doesn’t need to print an earnings report to be valuable. Nor can it be issued by a government and have its value diluted. Those are worthwhile traits, but most investors don’t store physical bars of gold in a vault. They buy a gold exchange-traded fund (ETF) like SPDR Gold Shares (NYSEMKT: GLD).
That can spare them a logistics headache, and enable them to purchase shares for less than the cost of an ounce, but it can’t make the underlying asset any cheaper. Plus, with so many investors chasing gold, its price is currently a lot more volatile than it used to be, which somewhat reduces its appeal as a safe harbor asset. And if you buy an ETF, it’ll charge you an expense fee.
So loading up on gold at its current price isn’t a very enticing proposition.
Cryptocurrencies aren’t as solid as gold, but they’re not as pricey either
On average, cryptocurrencies, even the safer and more established ones, aren’t a great substitute for gold. They’re far more volatile, and many derive their value from a very different set of properties.
Nonetheless, Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETH) might be a good place to start if you’re loath to buy gold at its current price.
Bitcoin has a 21-million-coin supply limit, and its supply policy ensures that it gets scarcer over time, which makes it a store of value. Its volatility makes it hard to believe that it’s actually “digital gold” like what’s frequently claimed. But, like the precious metal, no government can print more of it, and it doesn’t need to produce any specific economic results to continue to be valuable.
In contrast, Ethereum has no fixed supply cap, but there are periods when more Ether gets burned than issued as a result of high levels of activity on the chain. Its value is derived from its utility, as it’s necessary to pay transaction costs for any smart contracts or other activities that users perform on its network.
The trade-off here is practical.
These crypto assets can and do drop fast and far, even when the long-term thesis remains intact. Bitcoin is down by 30% in the last 12 months, and Ethereum is down 26%. At the same time, their upsides are likely higher than gold’s for those who buy them now, as their prices aren’t elevated, and they’re both in demand as a result of the real economic needs they serve.
So, buying Bitcoin and Ethereum is probably a better bet than buying gold right now.
Should you buy stock in Bitcoin right now?
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Alex Carchidi has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.