Bitcoin Was This Year's 'Worst Investment', FinExpertiza Consulting Claims

Francisco Memoria

Researchers from the FinExpertiza Consulting group have recently concluded that bitcoin, the flagship cryptocurrency, was this year’s worst investment, and that palladium, a precious metal used in autocatalysts, was the best.

According to a report published by Rossiyskaya Gazeta, FinExpertiza’s research saw it look into 14 different financial instruments and analyze what would’ve happened to a 300,000 ruble ($4,330) investment into each one of them this year.

If the money was invested in bitcoin, the researchers noted, it would have dropped by over 72.2%, as 213,000 rubles ($3,000) would’ve been lost. On the other hand, if the funds were invested into palladium, the 300,000 ruble investment would’ve increased by 30,000 rubles ($433), or little over 10%.

Nina Kozlova, the general director of FinExpertiza, was quoted as saying:

And if we look in retrospect, for example of two years, we will see that palladium, in general, has become the only metal with a positive return.

Bitcoin notably started the year at roughly $13,400 and has kept on dropping to a low of little under $3,200. This month the flagship cryptocurrency started recovering and, at press time, it’s trading at $3,670.

According to Mati Greenspan, a senior market analyst at eToro, it could still drop to under $3,000 although the $3,500 to $3,000 region is seen as a support zone. The cryptocurrency’s fall notably hasn’t seen development and adoption stop, as earlier this month its layer-two scaling solution, the Lightning Network (LN), surpassed the 500 BTC capacity.

Bitcoin's price drop this year

Last year, bitcoin went from $1,000 to a near $20,000 all-time high, which led some to believe its price was going to keep on growing. Tom Lee, a Wall Street analyst and the head of research at Fundstrat Global Advisors, maintained a $25,000 by year-end price prediction throughout most of the bearish trend, but lowered it to $15,000 last month.

Other long-term price predictions still see the cryptocurrency’s price surge in a small amount of time. One of the most bullish predictions is that of cybersecurity pioneer John McAfee, who has predicted BTC’s price will hit $1 million by 2020.

Palladium outperformed every other asset in the study as its price has been heavily influenced by the threat of a potential US-China trade war, and by demand that far surpassed supply this year, according to analysts.

Bitcoin vs Bullion: Which Is the Best Store of Value?

While Bitcoin might currently be considered a novel way of storing value, precious metals — specifically gold — have remained a fungible, private, and stable method of storing value for thousands of years. In today's post, we answer the question that the next generation of investors might be asking: can Bitcoin compete with Gold as a store of value?

One of the primary use cases of Bitcoin, apart from the transfer of value between individuals without the interference of institutional banking platforms is as a store of value. Bitcoin holds a distinct advantage over traditional fiat currencies in that it is a deflationary asset — rather than lose value, the limited number of Bitcoin that will ever exist makes Bitcoin, like gold, immune to inflation.

Bitcoin, however, is currently highly volatile, and exists within an evolving regulatory environment that obscures the long-term implications of holding it as a means of storing value. Gold, in contrast, has remained in a stable regulatory ecosystem and was, until the early 1970s, a cornerstone of the international fiat currency system.

Many cryptocurrency traders and investors exit positions in the cryptocurrency market by either “cashing out” Bitcoin for fiat currency via a wallet or exchange, or by trading bitcoin for “stablecoins” that are pegged to fiat currencies.

While these practices allow traders and investors to hedge against the volatility of the crypto market, they still rely on fiat currency. Gold on the other hand offers cryptocurrency traders a stable means of storing value outside of the cryptocurrency market without relying on the banking system.

Why Buy Gold?

gold chart.pngThe price of gold has risen approximately 100% since the Bitcoin network was created in January 2009

The primary function of gold in most investment portfolios is a hedge against volatile markets. The value of gold is generally stable, providing traders and investors with a reliable asset that can be purchased and held in case of a market crash. The 2008 global financial crisis, for example, saw gold prices increase by 5.5%, a significant shift for the precious metal, due to large liquidity and hedging needs.

Gold possesses several qualities that make it ideal for cryptocurrency traders seeking to establish a stable store of value outside of the cryptocurrency market: Unlike fiat currency, there is a finite amount of gold on the planet — it’s not possible for a country to mint any more than already exists.

Just like bitcoin, gold is also impossible to counterfeit. The unique chemically inert, non-allergenic, and ductile properties of gold make it a highly valuable precious metal, and one that is used in hundreds of industries worldwide.

While gold may not be ideal for traders seeking to profit from arbitrage or price volatility, it serves a critical function as a stable asset that can be used by traders as a secure, reliable long term method of storing value.

Buying and Storing Gold

Unlike bitcoin, gold is anchored to the real world with a physical presence. This means unless you have storage facilities—like a home vault, for example—you are likely to need to rely on a third party to store your metal.

Options for buying and selling gold are typically more limited than with bitcoin. Although you can theoretically sell to high-street shops or online broker-dealers at any time, these sources of liquidity tend to dry up during times of high demand. Unless you buy gold from a friend, you are also unlikely to be able to purchase gold anonymously, which gives bitcoin an advantage to the privacy-conscious.

If you are interested in buying gold using bitcoin, you can do so using the original bitcoin-gold exchange Vaultoro.

Why Buy Bitcoin?

Bitcoin holds a major advantage over gold as a bearer instrument — unlike gold, bitcoin can function as a currency, and there are a growing number of businesses that accept bitcoin as a payment method. While it’s possible to purchase goods and services both online and physically with bitcoin, it’s generally not possible to purchase a coffee, for example, with gold.

Gold may also appear to be a highly stable asset, but on a grand scale, the price of gold demonstrates inflationary characteristics. Over the last 100 years, the annual supply of gold has increased by between 1 and 2 percent. In comparison, the total supply of bitcoin is fixed by code — there will never be any more bitcoin beyond 21 million individual coins.

Buying and Storing Bitcoin

Bitcoin has a unique advantage over gold as a store of value. As crypto pioneer Nick Szabo points out, Bitcoin (and other crypto assets) are the only assets that can be secured without the help of the government. While land, property, stocks, or gold bullion can be taken away by force,  bitcoin does not exist in the physical world.

This means you can simply memorize your private key, perhaps in the form of a seed phrase of a few words, and then carry your bitcoin around in your memory.

If you were to buy your bitcoin anonymously using a peer-to-peer platform or a decentralized exchange, then nobody else would even know that you own the bitcoin in that particular wallet. Of course, while this approach might grant you 100% freedom, you also must bear 100% responsibility for the potential loss (or forgetting) of private keys.

Which Is the Best Store of Value?

Although bitcoin and gold both serve different functions, they also share many qualities. Bitcoin has been called digital gold and can be considered complementary to gold.

Perhaps the biggest advantage bitcoin has over gold, as pointed out by Satoshi himself, is that it cannot be debased or counterfeited. Ever since gold has been used as a store of value, cunning criminals have sought to falsify the element by mixing it with other metals. Most recently, these Chinese financial institutions found themselves in a pickle after discovering the loan they had given to a jeweler was secured by nothing other than gilded copper.

That being said, a lot of investors still prefer gold because of its proven track record of over 5,000 years as a store of value.

About the Author

Kieran Smith provides content strategy and copywriting services for cryptocurrency companies at Bitcopy.