This is the 5th instalment of a 5-part short educational series. The objective is to impart foundational knowledge of the difference between money and currency. Understanding this will lead to a greater appreciation of gold as an investment.
Traditional assets such as gold and currencies are facing competition. It is coming from new forms of digital currency such as cryptocurrencies. These have emerged as the world has become more digitised. Gold has been a trusted store of value for centuries and fiat currencies are widely accepted. Cryptocurrencies are a relatively new and rapidly evolving asset class. They have grown in popularity in recent years.
Gold and cryptocurrencies are similar. They both provide a means to diversify investment portfolios and hedge against inflation. Gold has long been regarded as a safe haven asset. This is seen by with investors flocking to it during times of economic uncertainty. Cryptocurrencies have emerged as a new type of digital asset that is decentralized and immune to government control.
There are, however, significant differences between gold and cryptocurrencies. Gold has physical properties that make it tangible and long-lasting. Cryptocurrencies exist entirely digitally. Gold is widely accepted as a form of payment and has a long history of use as currency. Cryptocurrencies are still in their infancy and have limited acceptance in mainstream commerce.
Despite these distinctions, a fascinating relationship between gold and cryptocurrencies has emerged. Some cryptocurrency supporters see cryptocurrencies as a new form of digital gold. With similar properties that make them a reliable store of value. Cryptocurrencies, like gold, have a limited supply, are difficult to counterfeit. They are also not subject to government-induced inflation.
This concept has resulted in the creation of several cryptocurrencies that are backed by or pegged to gold. By combining the benefits of gold with the convenience and security of cryptocurrencies, digital currencies aim to provide the best of both worlds. Tether Gold (XAUT), for example, is backed by physical gold stored in a Swiss vault and aims to provide a stable and reliable store of value.
Omit, the gold-cryptocurrency relationship is complex and evolving. While these two asset classes have some similarities, they also have significant differences. The emergence of gold-backed cryptocurrencies also suggests that there is growing interest in combining the best aspects of these assets to create new forms of digital currency. It will be interesting to see how the relationship between gold and cryptocurrencies evolves as the world becomes more digitised.
