The Feverish Rise of Cryptos
In 2024, Bitcoin surged well over 100% and broke $100,000 for the first time in history. But, with a market cap of over $1.8T, it was far from the best performing crypto. Year-to-Date top performers include memecoins like Pepe, Dogecoin, and Shiba Inu.
According Finance Magnates, a blockchain news provider, cryptos saw the second best year in history as trading volume hit $18.4T.
“The crypto market experienced a monumental performance in 2024. Boosted by major developments like regulatory clarity, Bitcoin spot ETF approvals, and DeFi innovations, the average monthly trading volume soared to $1.5 trillion, up a staggering 135% from last year … November alone reached $2.7 trillion in trades, a three-year high, surpassing even some of the most active months of the 2021 bull run.”1https://www.financemagnates.com/cryptocurrency/crypto-sees-second-best-year-ever-2024-trading-hits-184-trillion
Most crypto investors are looking for profit and hoping to reap high returns. But cryptocurrencies also offer the appeal of decentralization operating outside of any governing body. Digital currencies also have diversification attributes, and can function as a hedge against a weakening dollar, inflation, and market volatility.
According to Investopedia:
“Cryptocurrencies represent a new, decentralized paradigm for money. In this system, centralized intermediaries, such as banks and monetary institutions, are not necessary to enforce trust and police transactions between two parties. Thus, a system with cryptocurrencies eliminates the possibility of a single point of failure—such as a large financial institution setting off a cascade of global crises, such as the one triggered in 2008 by the failure of large investment banks in the U.S.”2https://www.investopedia.com/terms/c/cryptocurrency.asp
These digital tokens, however, can be highly speculative. They’re extremely volatile, have security risks, a somewhat steep learning curve, and lack intrinsic value. They are not for the faint of heart and some claim require a substantial leap of digital faith.
A Complex Value Chain
San Francisco Fed President, Mary Daly, recently called cryptos “complex.” She said they have multiple functions, and do not quite possess the attributes of a “true” currency.
“I see crypto as a complicated thing, and the service we need to do for everyone is really unpack what we mean and call it what it is — once we’ve done that … It can be a currency. It could be a medium of exchange. … It could be a stock — an asset to hold value or sometimes lose value. We just have to define those terms.”3https://finance.yahoo.com/news/crypto-isnt-really-an-asset-like-gold-san-francisco-fed-president-mary-daly-says-175529348.html
To the average investor, cryptocurrencies are “complicated.” They use cryptography or coded and complex mathematical algorithms to encrypt data to protect it. Blockchain is where the data is stored, and it is considered the backbone of cryptocurrency security.4https://online.utulsa.edu/blog/cryptocurrency-security/
According to cybersecurity company Astra, blockchain is a decentralized public ledger network that allows organizations to connect to it via “nodes” for data storage and processing. The data is stored in “blocks” and can be accessed via verification and validation.5https://www.getastra.com/blog/knowledge-base/blockchain-security
But according to IBM, blockchain is vulnerable to security breaches.
“While blockchain technology produces a tamper-proof ledger of transactions, blockchain networks are not immune to cyberattacks and fraud. Those with ill intent can manipulate known vulnerabilities in blockchain infrastructure and have succeeded in various hacks and frauds over the years.”6 https://www.ibm.com/topics/blockchain-security
In addition, the Canadian Securities Administrators outlined the following risks associated with acquiring cryptocurrencies as an investment:
- Volatility: Prices of crypto assets are often driven by media or social media hype and can rise and fall quickly and dramatically.
- Liquidity: When trading on a crypto asset trading platform, the CTP may not have enough crypto assets to cover your order. There are also no guarantees the demand for any given crypto asset will continue. CTPs may limit or suspend trading, or there may be limitations or suspension imposed on funding and withdrawals from accounts.
- Online risk: Crypto asset service providers and intermediaries may exist anywhere in the world. It can be difficult or even impossible to identify or locate the service provider or intermediary and take any action if you have a problem.
- Technical and cybersecurity: Technology and platforms used for crypto trading are susceptible to cybersecurity threats and hacking, putting your funds and crypto assets at risk.7https://www.securities-administrators.ca/investor-tools/crypto-assets/recognizing-crypto-risks
Precious Metals: Simple and Tangible
Precious metals are fundamentally different from cryptocurrencies. By comparison, they are fairly uncomplicated assets that are rare, natural, enjoy global demand and carry inherent value.
Gold, silver, platinum and other monetary metals are easy to comprehend since they’re scarce elements that must be extracted from the earth through a manual mining and refining process. Their value is well-established and rarely questioned. It dates back thousands of years to ancient civilizations, historic coinage systems, and stints as monetary standards.
Precious metals are tangible assets that you can touch, feel and hold and unlike cryptocurrencies, they have far more diverse uses and forms of market demand that elevate their investment profile as outlined by TD Ameritrade:
“To understand the value of an investment, it helps to know something about how it is used.
How gold is used: Apart from its use in jewelry, coins and bars, gold’s electric conductivity and resistance to corrosion has made it an ideal material in industries like dentistry and electronics. Unlike most commodities, the value of gold is more tied to economic factors and demand from traders.
How silver is used: Although silver is used in many of the same ways as gold — including in jewelry and silverware — it’s also considered to be an industrial metal, and used in solar cells, cars, batteries, electronics, water purification and more. Silver tends to trade in line with gold, although its demand as an industrial metal can also affect its value.
How platinum is used: As one of the harder precious metals, platinum is used in optical cables, LCDs, pacemakers, dental fillings, catalytic converters in vehicles, computers and more. Because platinum is mined in so few places around the world, its price can be influenced by geopolitical concerns.”8https://www.td.com/ca/en/personal-banking/products/personal-investing/precious-metals-gold-silver-platinum/precious-metals-considerations
Low Volatility and Long Term Stability
When directly comparing bitcoin and gold, the former is infamous for its wild price swings. While Bitcoin has significant upside potential, it also has a far greater volatility profile than any other traditional asset.
According to a Forbes crypto journalist, “When analyzing annual volatility metrics, how much an asset’s price is expected to fluctuate over a year, based on its daily price movements, it becomes clear that Bitcoin has more volatility (including more upside potential) than any other asset on the market today. For example, a 20% annual volatility suggests the asset’s price might move up or down by about 20% within a year. Bitcoin’s average annual volatility over the past 10 years is 46.31% … This significantly surpasses the volatility of all other assets examined. For example, it’s 4.8 times higher than the S&P 500 (9.64%), 5.3 times higher than gold (8.68%), and 3.1 times higher than Apple stock (16.60%) over the past decade.”9 https://www.forbes.com/sites/digital-assets/2024/08/16/how-volatile-is-bitcoin-compared-to-other-assets
By contrast, gold is considered a safe haven asset that is held by central banks and savvy investors around the world for its overall stability, powerful diversification attributes, low correlation with many financial indices, and ability to function as an inflation hedge.
And aside from the meteoric rise of many cryptocurrencies like Bitcoin, gold has been one of the best performing traditional assets of 2024, climbing over 27% on the year and it did so incrementally, judiciously, and with little angst as outlined by an analyst at FX Empire.
“The price of gold tends to fluctuate slowly and less dramatically. It is known for its long-term stability, making it a relatively low-risk investment. On the other hand, Bitcoin’s volatility can lead to rapid price swings. In 2021, Bitcoin surged to over $60,000 before dropping by more than 50% within months. This volatility is a key consideration for risk-averse investors …. Gold also has a stable and well-established market with institutional and retail investors. Bitcoin’s adoption is growing, but remains a relatively new asset class. It is still in the early stages of institutional adoption, which could lead to future growth but also presents a risk if adoption slows or reverses.”
For investors looking for stable, alternative assets — gold, silver and platinum have proven to be viable options that offer strong portfolio diversification and effective wealth protection. And they can still deliver a high return on investment without explosive volatility or pronounced cyber risk.
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2 https://www.investopedia.com/terms/c/cryptocurrency.asp
4 https://online.utulsa.edu/blog/cryptocurrency-security
5 https://www.getastra.com/blog/knowledge-base/blockchain-security
6 https://www.ibm.com/topics/blockchain-security
7 https://www.securities-administrators.ca/investor-tools/crypto-assets/recognizing-crypto-risks
