While Americans grapple with how to identify the best ways to preserve their assets, particularly during the economy's current crisis, many are looking into additional diversification options, such as gold and silver coins or cryptocurrencies. Here, U.S. Money Reserve explains the differences between these approaches and details the potential risks associated with cryptocurrencies.
Precious Metals: The Basics
Precious metals, such as gold and silver, are popular for their versatility and finite supply. These metals have a proven record of performance over the long term, including outperforming many other popular asset classes; offer a tangible store of wealth; and are used in a host of commercial applications from jewelry to electronics. As a beneficial portfolio diversifier, gold historically has risen in price when stocks decline. This means that, amid the U.S.'s current geopolitical tensions and economic uncertainty, gold and silver could see prices driven even higher in the future. While the U.S. navigates economic pressures, political uncertainty, and international tension, precious metals can offer the stability that many clients are looking for when it comes to protecting their wealth over the long run.
Cryptocurrencies: The Basics
Cryptocurrencies are digital currencies that rely on cryptography for transactions. Such transactions are digitally recorded on a distributed ledger, such as a blockchain. This means that these currencies reside on the internet and have no governing authority or physical presence, making it relatively easy to anonymously transfer cryptocurrency funds without using a financial institution.
Out of all cryptocurrencies, the most popular is Bitcoin, a digital currency based on mathematical algorithms. You can buy and sell Bitcoins using traditional currencies on cryptocurrency exchanges. Alternatively, you can "earn" Bitcoins by completing complicated math puzzles.
Cryptocurrencies have surged in popularity in recent years in part because of their anonymity benefits and the fact that they function outside of governments and central banks. However, there are potential risks associated with cryptocurrencies. U.S. Money Reserve shares five potential cryptocurrency risks, as well as details additional benefits that precious metals offer.
First, as cryptocurrencies only exist on digital exchange platforms, they can be vulnerable to cyberattacks. For example, in 2014, cybercriminals stole 850,000 Bitcoins valued at $460 million from the exchange platform Mt. Gox. The platform could only recover 24 percent of the Bitcoins and filed for bankruptcy. Similarly, hackers stole around 120,000 Bitcoins valued at over $70 million from the Bitfinex site in 2016. These are just two examples of cybercrime surrounding cryptocurrencies.
Meanwhile, silver and gold exist in the physical world and are therefore safe from these kinds of online attacks. In particular, gold coins-which you can store securely and liquidate easily-can help protect your portfolio over the long term.
2. Volatile Profit Potential
Cryptocurrencies can fluctuate wildly, rising and falling by over $1,000 in just a matter of hours. Tech analysts from Credit Suisse explain that the price of Bitcoin has been three times more volatile than the price of oil and 11 times more volatile than the post-Brexit exchange rate between the U.S. and the U.K. While huge increases in Bitcoin profit potential have attracted many, no one can predict when or if a potentially devastating fall may occur.
Meanwhile, silver and gold are typically considered less volatile than cryptocurrencies. Historically, gold has risen in price when stocks have fallen. Gold is considered a safe-haven asset and can offer vital diversification benefits during times of economic downturn.
3. Limited Performance Record
Bitcoin might be the most popular cryptocurrency, but it is far from the only option. There are hundreds of digital currencies out there, and new cryptocurrencies continue to be created. But these cryptocurrencies do not have a long performance history when compared to other assets, such as stocks and gold.
While gold and silver coins offer a physical store of wealth with an extensive track record, cryptocurrencies are digital assets that rely on blockchain technologies and lesser-known algorithms, leaving the future of your funds potentially more uncertain.
4. Legal Implications
Some countries do not consider cryptocurrency legal tender or have even deemed cryptocurrency transactions illegal. Already, Thailand, Bangladesh, Ecuador, Korea, Norway, Russia, Bolivia, and India have all either rejected or banned cryptocurrencies altogether. In fact, if you complete any cryptocurrency transaction in Bangladesh, you could face a prison sentence of up to 12 years. If you are looking to transfer funds internationally, be aware of your legal rights. Meanwhile, gold can be privately accumulated, easily liquidated, and traded worldwide.
5. Lack of Long-Term Price History
As cryptocurrencies are still in their infancy, they have a limited performance history. The U.S. Securities and Exchange Commission warns that there could be "significant risk involved in putting your money into something that has not been around very long."
Meanwhile, gold has been around longer than any form of paper money, offering more than 5,000 years of history as a monetary asset for people around the world. As a result, gold's position as an essential player in the international monetary system is unlikely to be threatened by digital currencies.
About U.S. Money Reserve
Headquartered in Austin, Texas, U.S. Money Reserve specializes in offering government-issued gold coins-as well as a selection of silver, platinum, and palladium legal-tender products-to clients across the country. The acclaimed company assists precious metals clients at every level and nurtures long-term relationships to ensure that each client finds the best products for their needs. Those who are looking to diversify their portfolios with precious metals will likely find U.S. Money Reserve's services invaluable.
Sign up for your free Gold Information Kit and seek advice from U.S. Money Reserve's expert team at www.usmoneyreserve.com.