Gold has served as a store of value for thousands of years. Because of this, investors have widely used it as a hedging tool against the effects of recessions and inflation, often triggered by geopolitical tensions. In light of recent events such as the COVID-19 pandemic and, more recently, the military crisis between Russia and Ukraine, many investors have sought alternatives to gold and other precious metals as hedging options. As we approach a digitized era, it is a prerequisite that alternatives to gold are equipped to deal with the future. In this quest for a contender to challenge gold’s dominance, Bitcoin (BTC) has shone the brightest.
A spike in the gold price is usually an indicator of fear in traditional stock markets, with the current consensus among investors being that gold is currently overbought. Gold prices have risen to $2,000 as investors weigh the geopolitical and economic implications of the Russia-Ukraine conflict.
In contrast, Bitcoin and other cryptocurrencies have increased capital funding during the same period. Research firm Fundstrat said venture capital buyers invested about $4 billion in the crypto space in the last three weeks of February 2022. In the first week of March 2022, another $400 million in startups was poured into the crypto space. This increase in funding suggests that global investors are seeking greater exposure to a space they believe could withstand the effects of the Russia-Ukraine conflict.
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Due to the ongoing conflict, both populations have suffered economically. The military activity in Ukraine has resulted in many businesses closing, which has of course hurt the local economy. Russia is subject to economic sanctions that have resulted in restrictions on bank accounts, loss of access to most forms of electronic payment and the devaluation of their local currencies. Due to Bitcoin’s decentralized nature, there are still no unified international laws to regulate the cryptocurrency, meaning BTC retains value regardless of its holder’s location. Bitcoin is legal in most countries, some even declare it legal tender.
Crises leading to the displacement of individuals have demonstrated the potential impact Bitcoin could have on the future. Bitcoin does not require the massive amount of effort required to transport gold. A person would not have to declare their Bitcoin while crossing international borders and take the risk of confiscation or theft in connection with the transportation of physical gold.
Bitcoin’s potential usefulness in times of need increases its attractiveness to traditional investors. Thanks in part to Bitcoin’s recent decline in value, this appeal has also grown. A key advantage of Bitcoin over other cryptocurrencies is its general awareness as it has been around long enough that it has gained support and recognition and even showed some trends in that time.
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Stability in times of crisis
The global COVID-19 pandemic has shown to many that Bitcoin can withstand the effects of the conflict between Ukraine and Russia. The pandemic led to a global economic decline for many traditional sectors. Coinbase reported an ingestion of $1.4 billion of fiat and cryptocurrency in wallets on its exchange over 24 hours during the then-peak of the pandemic in March 2020.
In the first half of March 2020, investors quickly noticed that Bitcoin managed to maintain its value as the traditional stock values around it crumbled. This increased the amount of capital poured into the cryptocurrency, eventually reaching an all-time high of around $60,000 in March 2021. The stability Bitcoin has shown during that particular crisis has increased its attractiveness as a hedging option for those skeptical about it. the future of gold viability.
Despite the recent explosion within the crypto sector, crypto markets remain in the shadow of traditional market investments in valuations. Due to regular exposure to Bitcoin’s potential, we have seen this gap close much faster than originally predicted. Investors have always sought the most current and viable options for their portfolios.
With the advantages Bitcoin has over gold and the certainty of a digitized future, many investors are looking to diversify their portfolios and Bitcoin seems like the best option. This increasing flow of capital into the crypto space can only go on for so long until the floodgates finally open, allowing Bitcoin to take its place as the new gold.
This article does not contain investment advice or recommendations. Every investment and trading move carries risks, and readers should do their own research when making a decision.
The views, thoughts and opinions expressed herein are those of the author only and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Sheraz Ahmed is the managing partner of STORM Partners and co-executive director of the Crypto Valley Association. Sheraz Ahmed has experience with an insightful understanding of innovation and has advised hundreds of organizations on how to implement modern practices to achieve their business goals. He drives growth, collaboration and integrity in the global blockchain ecosystem.