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Crypto Daily Topic

Gold Vs Bitcoin: Which one is a Better Long-term Investment?

The most striking difference between gold and Bitcoin is that the former is a tangible asset. At the same time, the latter is an intangible digital asset that is created by computers crunching complex equations. From an investment perspective, gold is regarded as a ‘safe haven’ asset given its long history as an alternative investment for hedging against stock market volatility. Also, the increasing ownership of gold by central banks and governments further validates its ‘safe haven’ status as a reliable store of value. 

Bitcoin, on the other hand, is a new entry into the asset market. It made headlines in 2017 when it traded at an all-time high price of $20,000. Since then, it’s the market price has been swinging violently, which explains why it’s considered a speculative investment. Although Bitcoin’s outsized volatility usually scares off investors, it has contributed to the increase in the value of the digital asset in the long haul. 

That said, in a digital economy, hoarding piles of gold bars as a store of value can be overly cumbersome. As such, many investors are concerned about their long-term wealth and are mulling over investing in Bitcoin – a virtual currency whose future looks promising in the era of the digital economy. 

Fundamental differences between Gold and Bitcoin 

Besides the physical-digital difference, other key distinguishing features need to be examined before investing in either gold or Bitcoin. These include: 

i) Supply and demand

As with most assets, the value of gold and Bitcoin is tied to their supply and demand. The higher the supply, the lower the demand, leading to lower market prices/value. 

For starters, it’s hard to know the exact supply of all the gold in the world. However, if one were to draw a graphical representation of gold’s supply, one would notice a gradual increase in gold’s market supply over the years. With this in mind, we can deduce that gold’s price will decline at some point due to low demand. Also, owing to its unknown supply, the price of gold is prone to sneaky inflations. With Bitcoin, it’s a different case. 

A well-known characteristic of Bitcoin is that its supply is capped at a known value – 21 million Bitcoins. So far, there are about 17 million Bitcoins in the market. This is to say that its supply will decrease over time, driving up its demand. Consequently, Bitcoin’s price will increase. Also, a fixed supply means that Bitcoin can’t bend to inflationary pressures associated with overproduction. Additionally, as modern commerce becomes more digitized, Bitcoin users will increase in equal measure, further increasing its value.

ii) Liquidity

When investing in an asset for the long-term, it implies that you won’t liquidate it anytime soon. However, it would be best if you considered the asset’s market liquidity. This is especially true when you need to raise a high amount of cash, and the only way is to sell part of your entire investment. 

For gold, it’s easy to exchange it for fiat cash by selling it to a local buyer. How fast and easy you exchange it depends on the amount of gold you have. Liquidating a few gold bars/jewelry is easier compared to liquidating a sizeable amount of gold, not to mention the risk of theft.  

Bitcoin, on the other hand, has a relatively high liquid market, making it easier to exchange any amount of Bitcoin for cash. The high liquidity is due to an increased number of exchanges with high trading volumes, in addition to other intermediary solutions such as Bitcoin ATMs and stablecoins. What’s better, Bitcoin can be liquidated in smaller amounts, of up to 8th decimal place, making it easy to liquidate just the right amount. Unfortunately, gold isn’t divisible into smaller amounts as those of Bitcoin’s magnitude. 

iii) Reliability

Suppose there’s one area that gold triumphs over Bitcoin, is in reliability. For more 2,000+ years, gold was used as a medium of exchange. Even after the advent of money, it has managed to maintain a relatively stable value.

At one point in the long history of gold, the US government, under President Franklin Roosevelt, implemented measures to prohibit and criminalize the possession of gold. Even though the gold prices plunged following these drastic measures, trading and possession of gold increased significantly in subsequent years. If the same crackdown were placed on Bitcoin usage, it would put the digital currency at the end of the bench. Even worse, a change in consumer preferences or the advent of a new technological disruption has the potential to stunt the growth of Bitcoin ultimately. As such, gold being a natural resource will consistently hold its value for more years compared to Bitcoin, which is a dynamic human-made system. 

Additionally, gold investment has proper regulation, while investment in Bitcoin is not regulated. This gives gold added legitimacy making it a preferred investment option. 

iv) Utility 

Gold has several uses besides being a store of value. It can be used on luxury items like jewelry and even in electronic devices where it acts as a conductor. In some cases, gold coins are also used in place of fiat cash. Due to these real-world use cases, it has a more readily available market, which adds to its liquidity. 

Bitcoin, having been in the market for just 11 years, is making quite plausible efforts to gain real-world use cases besides its position as a speculative investment. Infrastructures such as Merklized Abstract Syntax Trees ( MASTs), Taproot, and Schnoor signatures are pushing Bitcoin in the direction of real-world functionality in which it’ll contribute to the development of smart contracts. Moreover, it is anticipated that as Bitcoin usage increases in the incoming digital economy, its demand will rise relative to its mathematically metered supply. This will increase Bitcoin’s price and liquidity. 

Conclusion: which one is Better? 

Gold has been around for quite a long time and doesn’t show any clear sign of fading away from the market anytime soon. Its value will likely increase as various governments use it as a monetary reserve. The same can’t be said about Bitcoin since it’s still in its infancy stages. As we approach the digital economy, Bitcoin investors are bound to reap hugely. So, asking whether Bitcoin is a better long-term investment compared to gold isn’t entirely appropriate, as it is possible that the two can, and will, exist as complementary assets. As such, both Bitcoin and gold can fit in an investor’s long-term portfolio for diversification purposes. 

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Forex Market Analysis

Tit-for-tat weighs heavy on the markets

A difficult week

It has been another difficult week in the markets, and this has been primarily down to the difficulty in assessing what the trade standoff between the US and China mean for the markets. The week started off with the market taking fright as additional tariff threats were voiced by the US, leading to a sharp sell-off in equity markets. However, much of that rhetoric was rowed back on leading to a significant bounce back actually making pre-fright highs before the SP500 started to sell off again.  This simply means that there is no overriding directional bias in either direction making this market very choppy and difficult to trade.

 

Gold

As a result, the Gold market responded by initially strengthening due to the fear related to the equity story but then reversed those initial gains and now trades right in the middle of significant support and resistance levels which can be clearly seen from the chart below, these significant levels are $1,357 and $1,310, so all eyes will be on these levels over the coming days and weeks to see what is next for the yellow metal.

Oil

The Crude-Oil market responded to these major global developments by initially selling off but then after seeing a bit of erratic price action we continued to see a continuation to the down side, closing the week below the $62 level.  However, from a technical perspective, the situation regarding the crude oil market is an interesting one.  We can see from the chart below that we have been in a consistent up trend since mid-June 2017, reaching a high of $66 towards the end of Jan 2018.  Since this time, this market has clearly struggled to break the $66, creating a double top end of March.  So over the last two weeks, this market has bounced back to its lower trend line.  The next few days will be interesting to see whether the support level holds and we see another attack at the $66 level or will this support level break, and we see prices pushing down to a potential structural failure below the $60 level which would put major pressure on this market to the downside.  At this crucial point, it’s hard to see whether buyers or sellers will win out.

 

So just to recap, over the course of the last 5 trading days, US officials made very strong statements about the need for trade tariffs to be introduced only for US officials to then row back on some of its rhetoric, as a result, market nerves were calmed, and Monday’s fear related move was subsequently reversed. The S&P rallied and then retraced, and the gold and crude oil markets came off.

US Dollar

The USD, however, has been impacted by recent events but to a lesser degree. As you can see, from the chart below, the dollar index has been in a period of consolidation since mid-Jan.  These, unfortunately, for the time being, are the market conditions in which we are trading the USD. The two major prices to keep an eye out for over the coming days and weeks is the 99.880 to the up side and 88.416 to the down side.  A move in either direction would be significant for this market.

 

EURUSD

EURUSD continues to trade within a range. Today’s weaker NFP numbers perhaps suggest that the pair might move higher next week given the fact too that from a technical perspective, the pair is trading closer to the lower end of its range as can be seen from the chart below.

 

USDJPY

USDJPY has been firmer this week, however, watch the key pivotal resistance area next week around 108.20. This was the breach that confirmed a bearish range breakout back in February.

 

 

The US Dollar paired earlier gains during Friday’s London session after data showed the US economy adding new jobs at less than half the pace economists had expected for the March month. The important Non-Farm Payrolls figure grew by just 103,000 during the recent month, which is down from 313,000 in February and far below the economist consensus for a reading of 188,000.

Separately, the unemployment rate held steady at 4.1% for the month when markets had been looking for a 10-basis point fall to 4.0%. Household incomes grew by 0.3% during the recent month, which is up from the 0.1% seen in February and in line with the consensus forecast of economists.

 

Price action largely noted limited volume in the week leading up the non-farm payroll figure but saw initial volatile swings before the USD began to weaken over the course of Friday afternoon and evening.

Trade of the week – Long GBP/USD

With the US caught up with trade issues with China causing confusion among other countries and added uncertainty across the US Dollar Forex Pairs, perhaps the best technical trade may look GBP support with better than forecast UK economic data.

With the GBP showing strength over the USD in April for the last 13 consecutive years running, speculators are now looking at this trend for the best potential buying opportunity. With good news for the pound with UK PMI slightly higher than expectations, Friday trading is seeing the pound trade up with a touch and bounce from the greater bullish trendline of 2017. The discussion now seems to favour the pound is seemingly defying the expectations of Brexit doom.