Why they are complementary assets for your portfolio.
As an asset class, cryptocurrencies continue to gain popularity.
Investors of all sizes see a new avenue for growth and portfolio diversification with the mainstream adoption of cryptos like Bitcoin and Ether. With Bitcoin even touted as the new gold, physical gold’s role in a diversified portfolio is asked.
It isn’t about gold vs. crypto. It’s about gold and crypto.
We think comparing gold to crypto is like comparing apples to oranges. Because while they may belong to the same family (investments), they are fundamentally different (asset classes). Their risk profiles mean they play very different roles within portfolios. How much gold or crypto to hold depends on answers to other, more proactive questions: What is your risk appetite? What percentage of your portfolio are you comfortable having a highly volatile asset like crypto? What do you value more—digital assets, long-term wealth preservation, capital gains, or more tangible, liquid options?
Crypto is in its infancy.
While the value of crypto’s underlying blockchain technology is undeniable, so too are some cryptocurrencies’ volatility, speculative nature, and high risks. For example, in March 2020, the price of Bitcoin dropped by more than 40% and ended the month 25% down. (In contrast, while the gold price initially fell by 8% in March, it quickly rebounded to the level it started and continued the upward trajectory as investors continued to add hedges to their portfolios.) Ongoing regulatory battles, cyberattacks, and scams can put off investments in crypto, as can a lack of knowledge and awareness of both the philosophical and real-world underpinnings of crypto.
With its intrinsic value, gold is tried and tested.
Gold has been an intrinsic store of value for millennia, and due to its finiteness, will remain so. It has proven itself a stable, long-term investment vehicle, recognized and universally accepted across cultures. Gold is often viewed as a hedge against inflation and a store of value through thick and thin. Its malleability and portability make it practical and helpful to people and businesses. Gold plays an essential role as a portfolio diversifier and has frequently demonstratedsa negative correlation to the market during economic downturns.
It’s why banks and institutions continue to buy gold.
Though it no longer backs the US dollar, central banks and institutional investors add to their gold reserves, showcasing its value. Similarly, individual investors today have multiple ways to buy and own gold. The market has moved beyond jewelry to gold futures and shares in gold mining companies, ETFs, and mutual funds. But we believe there is nothing quite like owning real gold, a trusted and effective store of wealth for millennia. According to The World Gold Council, gold has offered a source of returns rivaling the stock market over various periods, has traditionally performed well during inflation, and has a highly liquid and established market.
Balancing investing in crypto with an investment in gold.
The World Gold Council suggests that a higher exposure to Bitcoin or cryptocurrencies—and therefore a higher exposure to risk—warrants a higher or equal allocation to gold for a more balanced and diverse investment portfolio, with its role as a hedge against risk and volatility. For example, Bitcoin’s Value-at-Risk (VaR) is nearly five times higher than gold. Bitcoin has been three times more volatile than the S&P 500 in the past two years and more than four-and-a-half times more volatile than the price of gold. This means that during any given week over the past two years, investors had a 5% chance of losing US$1,382 for every $10,000 invested in Bitcoin, nearly five times more than the VaR for gold.
The liquidity of fiat. The divisibility of crypto. No papers or proxies.
At SGPMX, we believe ownership of bullion, in which you own your gold the way the banks do, is the ideal way to balance your crypto assets. Furthermore, our ecosystem makes bullion liquid in a way the world has never seen before, thereby giving our clients the convenience of fiat with the benefits of gold. Buying bullion has traditionally been an expensive proposition, with commissions, storage costs, security considerations, etc. SGPMX addresses these concerns by making owning a bar or its fraction as easy as buying a stock.
We want to leave you with a humorous, perhaps insightful thought on the ongoing “gold vs. crypto” debate.
“My vote would be for gold because it has thousands of years of a historical record as a store of value, has one-fifth the volatility of bitcoin, and doesn’t face the same competition risk. The day that Queen Elizabeth trades in the five pounds of gold in her crown for crypto is the day I’ll shift course.”
—David Rosenberg of Rosenberg Research, former Chief Economist and Strategist for Merrill Lynch Canada and Merrill Lynch in New York.
NB, this article is neither investment nor tax advice. Before investing, please conduct your research and speak to a registered and qualified financial adviser. If you are interested in learning more about bullion, SGPMX, and how our offer may benefit your portfolio, do not hesitate to get in touch with us.