Inflation racing: gold or Bitcoin?

Inflation continues to rise around the world and there are more and more questions about what to do and which instruments to invest to be protected. Two in particular: gold or Bitcoin. 

Central banks are asking this question, as are investors and small savers. This topic has actually been divisive for some time, let’s try to explain the pros and cons of each of the above reserves but first I would like to make a premise. 

Inflation, gold and Bitcoin: questions for investors

The questions in my opinion should be two and the solution to one does not exclude the other, let’s go step by step. 

The first question to consider, however large one’s savings may be, is: are we willing or unwilling to lose it? 

This question seems trivial but it is not. Risk assessment is and should be the basis of anyone who cares about their savings. 

In this specific case, it is necessary because, despite the fact that cryptocurrencies, Bitcoin above all, have been tested for more than ten years without ever defaulting, without ever being hacked thanks to Blockchain technology and are becoming more and more popular all over the world, to the point that some states have adopted it as legal tender (El Salvador) and despite being deflationary by nature, are considered Risk-On by Deutsche Bank and Goldman Sachs, i.e. a safe haven but risky unlike gold which, tested for centuries, is considered Risk-Off.

1-0 for gold? Absolutely not, far from it. This preamble brings us to the second question: what is the remedy for inflation? And the answer is a safe asset that compensates for the loss due to the effect of inflation. 

If we take into consideration the trend of the safe-haven mineral par excellence and that of Bitcoin in the last year and a half, we will see that while the former tends to be less volatile, the latter despite the ups and downs grows steadily and more than the other and this is exactly what we are looking for. 

Inflation is a loss of value, the deflationary effect of cryptocurrency compensates by solving the problem.

The protectionism of the gold industry

Terence Zimwara in a recent article also compares our two “champions”, underlining just how gold, despite a loss of 4% from its historical maximum, is a store of value that is held in higher esteem and is considered safer by analysts, even if they suggest that it is not the most effective. 

Bitcoin in this regard has recorded +18% in the last year (+36% in the last 6 months). 

Bitcoin mining and gold mining. 

Another interesting aspect is the origin of the two protagonists; while the mineral is extracted in mines in various locations around the world, the other does not require a classic pickaxe but is produced by supercomputers that exploit renewable energy (geothermal energy, wind farms, hydroelectric, solar, etc. …) with important implications in terms of green economy and attention to the health of the planet. 

The mining market as a business has held up well and in fact has grown slightly says Mark Bristow, CEO of Barrick Gold Corp based in Canada. 

Despite the fact that gold closed 2021 on a downward trend, Bristow believes that investors will continue to prefer the mineral to protect against inflation because it is perceived as more reliable. 

The truth is always in the middle and perhaps, although I wouldn’t rely on a popular saying, this time it is.