Bitcoin is turning out to be as safe a haven as gold. The value of the cryptocurrency has been quickly increasing in the recent past. It traded over $730 per bitcoin on June 17th, 2016, levels not witnessed since February 2014.
According to Chris Burniske, a blockchain analyst and products lead at investment manager ARK Invest, “the cryptocurrency could be referred to as digital gold, as it shares many of the characteristics that make the precious metal a great store of value.”
Bitcoin and gold have an extremely restricted supply. Gold is utilized in electronic circuits, while bitcoin is utilized as payment.
At present, gold is performing well, increasing 20 percent year to date. However, investors must also consider diversifying into bitcoin.
The global markets have been impacted by lots of fear, uncertainty and doubts. Investors are anxious about the equity markets and rushing into bonds. Though gold has performed well in 2016, over the last five years, it has not performed well.
Hence, investors are seeking safe havens to store their assets. Experts are recommending to diversify and make allocations to bitcoin. Some analysts don’t agree that bitcoin is a safe-haven asset. It is still projected to be volatile.
According to Vijay Michalik, research analyst at consultancy Frost & Sullivan, “Bitcoin is still such a new innovation that the economics of its value aren’t fully understood, and the price looks likely to remain moderately volatile in the medium term.”
Volatility and the long-term unidentified aspects pertaining to bitcoin’s development prevent it from being treated as a safe-haven asset such as gold. However, since bitcoin is not connected to any particular national currency or macroeconomic feature, it could be an excellent choice for portfolio diversification.
The recent increase in the value of the digital currency is primarily due to a forthcoming transformation which would see bitcoin miners earn less money for every block that they extract.
This is expected to tighten the supply of bitcoins. The bitcoin developers are expected to implement a protocol called “Segregated Witness” to scale up bitcoin. It would decrease the size of every bitcoin transaction, thereby increasing the number of transactions.
Since bitcoin is not correlated with other financial investments, it would be advisable for investors to allocate a minor portfolio to the cryptocurrency. Even modest implementation of bitcoin for cross-border transactions would significantly increase its value because of restricted supply. Every time a nation establishes capital controls, the transaction volumes for bitcoin rises.
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