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The New Gold: How to Talk to Clients about Bitcoin

As far back as the early Egyptians and Romans, gold has been used as a store of value or a means of payment in commerce. A long-standing investment tool, it’s used because it’s a finite resource, making it appreciate in value over time. This unique combination of scarcity and profitability makes gold a tried-and-true safe haven in times of inflation. However, with the introduction of bitcoin, a cryptocurrency that shares many of gold’s more appealing qualities (and then some), investors are increasingly turning towards BTC as a way to hedge their portfolios against the rising CPI.

How bitcoin and gold are similar

Despite having vastly different timelines in the market, the two assets share a lot of similarities: 

  1. Limited Supply: Both gold and bitcoin have a limited supply. There will only ever be 21 million bitcoin in existence, thanks to its predetermined issuance algorithm. This scarcity creates a sense of value.
  2. Store of Value: Gold has been regarded as a store of value for centuries due to its durability and scarcity. Similarly, many proponents see Bitcoin as a digital store of value. Its limited supply, resistance to censorship, and increasing adoption have led some to view Bitcoin as a potential hedge against inflation and a long-term store of wealth.
  3. Decentralization: Both gold and bitcoin can be traded outside of the traditional market. For example, while you can invest in gold through ETFs, you can also buy gold in a peer-to-peer fashion over the counter. Bitcoin is inherently tradable peer-to-peer via the blockchain.

It’s easy to see why investors are comparing the two, and many are starting to see the advantages of Bitcoin as a digital version of an investment vehicle they already trust.

Hedging increasing inflation

Inflation is becoming an increasing challenge in the United States (and the world). In an attempt to balance an economy ravaged by a pandemic and slow a growing Consumer Price Index (CPI), the Fed started introducing rate hikes around March of 2022, and while they’ve made some impact, inflation remains uncurbed. 

Historically, investors turned to gold in times of inflation to bolster their portfolios with a limited resource. Bitcoin, too, has this potential (although it was less apparent in the most recent bear market due to the way the asset was trading). Increased consumer adoption of bitcoin (with cryptocurrencies seeing roughly 200 million new users) occurred in late 2021, and when the markets started taking a turn, investors appeared to trade bitcoin the same way they would any asset native to the S&P 500. In other words, the two markets began trading like Siamese twins and paired in fluctuations, dimming some of bitcoin’s potential as a hedge in an inflated market. 

Now, however, the markets are seeing a greater shift away from each other. Bitcoin resuming its past status of having a low correlation with the traditional market both makes it a better hedge against inflation and a crucial diversification element in the modern portfolio.

The new gold 

While gold is still a powerful investment tool, the Bitcoin network has the benefit of being fully digital and decentralized, making assets more accessible to investors and easier to buy, sell, and trade. Although it doesn’t share gold’s physical portability, bitcoin can be traded at any time, anywhere. Also, in terms of scarcity, gold is produced and available in nature (albeit at a slow rate) and can be mined somewhat indefinitely. Bitcoin is truly scarce; once the 21 million are mined, that’s it, increasing their value in comparison to a natural resource. 

And in terms of ROI over time, one statistic shows that the inflation-adjusted return of gold annually since 2009 has been about 3.3%, and the total return has been about 57%. In the same period, Bitcoin has an inflation-adjusted annualized return of nearly 145% and a total return of 33,983,965%

Overall, bitcoin is becoming more appealing to investors as it continues to prove its inherent value. 

Be ready to offer bitcoin

Demand for digital assets is finding its way into most financial offices, and it’s important to have the tools in place to make investments on behalf of interested clients. Onramp lets you put in the rails to buy, sell, and trade bitcoin in minutes. Incorporate bitcoin into your investment strategies using comprehensive, researched models produced by top innovators in the space like WisdomTree, Global X, CoinDesk, Valkyrie, Beyond Bitcoin, and more through our Marketplace, and keep investments secure by leveraging the growing list of custodians on our platform, including Coinbase and Gemini.

You have the tools you need—for investors that need them—on Onramp.

Disclaimer:  This is not investment advice. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction. All Content is information of a general nature and does not address the circumstances of any particular individual or entity. Opinions expressed do not express the views or opinions of Blockforce Capital or Onramp Invest.