Of all the cryptocurrencies that come to mind, Bitcoin is one of the most well-known. It traces its origins back to a white paper published by the enigmatic Satoshi Nakamoto in 2008. Using blockchain technology, Bitcoin and other cryptocurrencies offered a more advanced means of spending money.
Over recent years, cryptocurrencies have become more abundant and their values have risen and fallen, making them less a means of exchange but more so assets to invest in to make a quick buck. Depending on which point in the cycle you find yourself in, cryptocurrencies can be either a means of getting rich quick or just the path to losing your fortune overnight.
Price volatility makes it tricky for people to keep faith in cryptocurrencies consistently, but gold buyers know a thing or two about how to protect wealth with a precious metal almost as old as time itself.
The highs and lows of crypto
Since Bitcoin first entered into the public consciousness sometime in the early-2010s, it has experienced what many would term at least three price bubbles – prices starting from a low base before rising rapidly, attracting investment from all across the market, before crashing and losing a large chunk of value.
During one of Bitcoin’s last great price bubbles, it soared from a value of just $230 per Bitcoin in the spring of 2015, rising to a dizzying high of $19,900 in late 2017 before crashing to just $3,100 in the space of 12 months. In the meantime, gold prices doubled between 2015 and 2019, at least in pound sterling terms. While it was easy to see the allure of Bitcoin and making a fast buck, it ultimately destroyed a large amount of wealth for those unlucky enough to be caught close to the peak.
The cryptocurrency sector experienced a new inrush of money in 2019-20, with a new rally in prices centred around the turbulence of the final months of the Trump presidency over in the United States. During this time, gold prices were reaching a new all-time high, as investors were concerned about whether governments were able to respond to the COVID-19 pandemic adequately.
Cryptocurrencies have a somewhat predictable pattern in terms of price action, experiencing roughly four-year cycles. A low, followed by a steady increase in prices, before a final bubble phase and a two-year bursting of the bubble, before a new low is established. Economic trends are less of a deciding factor in the actual direction of cryptocurrency values, we now know, and more about the amount of money in the markets in general, whether it’s being pulled into stocks, bonds or some other asset altogether.
Gold, however, has been far more predictable and less volatile over the long term. It has a history spanning millions of years, starting in the hearts of exploding stars before being deposited beneath the Earth’s crust and ultimately being extracted from the ground to be used as a glittering metal famed for its long-lasting beauty. Cryptocurrencies represent but a fraction of human history, but gold has always had a role to play in human history. While crypto and gold may seem miles apart, they actually share something special.
Gold compliments crypto
There are multiple forms of cryptocurrencies: Bitcoin, Ripple, Ethereum and Tether to name a few. Gold, on the other hand, is a singular metal which, in its purest form, is soft and malleable to human hands. Often mixed with denser metals in small amounts to give it greater strength, gold has a common characteristic as one of the most sought-after precious metals. It is a noble metal, and hardly oxidises at all, meaning it retains a glittering appearance for generations.
It is also a tremendous store of value as it has been for generations. Adjusted for inflation, people in the Middle Ages would have had to spend at least a thousand pounds in today’s money just to get a single troy ounce of the yellow metal. At the time of writing, gold is valued at over £1,300 per troy ounce, having risen almost continuously since the turn of the new millennium. Bitcoin and other cryptocurrencies, on the other hand, have soared and collapsed multiple times.
But what is the factor that connects a precious metal such as gold with a virtual currency such as Bitcoin? The answer: when one investment experiences difficulties, people logically scour the market for a new store of wealth in the off-chance that it will appreciate in value itself. In recent months, Bitcoin has experienced a new bubble bursting, having risen to a value of almost $65,000 per Bitcoin in April 2021. In just three months, however, it has collapsed by half, leaving many with losses.
Gold, by contrast, has seen a dip in prices since 2020, but at a far gentler downward trajectory. When an asset collapses in value by 50 per cent, investors often begin to jump ship and start eyeing more lucrative opportunities elsewhere. Downward movements in price often create a self-perpetuating cycle: falling prices convince people to exit before they make a loss, causing prices to fall further, triggering further exits from the market and so on.
Once a price begins to slide, it can take many weeks or months before prices settle to a new low, and by this time, Bitcoin could be worth considerably less than those lofty highs seen in April. In the meantime, gold could quite possibly take a different path, perhaps rising in the event of greater economic turbulence in the near future. When gold prices rise, they often enter a bubble phase just like cryptocurrencies, but are more gradual, allowing more people to sit up and take notice, before buying some gold themselves. Bull markets in gold can last anything from five to ten years, giving buyers plenty of chances to buy into gold before the peak.
During gold’s last major low in 2015, prices were just £750 per ounce, but by the time it peaked in 2020, prices had doubled. If indeed cryptocurrencies are to experience a painfully long two-year downward lurch in value, many crypto-enthusiasts may see gold as a more viable path to tread. We can’t say for sure where gold prices will be by 2026, but if prices do indeed double in the next five years, you could find an ounce of gold worth as much as £2,600-£3,000 per ounce or more by then.
If you wish to buy gold with UK Bullion, don’t hesitate to get in touch by calling us on 0800 090 3256. We have a wide array of gold bullion bars and coins to appeal to anyone planning to make that leap from crypto to gold.