Protect Your Crypto Gains by Investing in Precious Metals
The phenomenon of an unregulated cryptocurrency was first thought of in 1998, but it wasn’t until 2009 that bitcoin was released as a source of digital money. Other forms of cryptocurrencies such as ethereum, ripple, and litecoin have also played a significant role in overturning the traditional paper currency method.
Over the past few years, significant gains and losses in the value of these cryptocurrencies have been noted. Due to these fluctuations, investors are starting to convert their crypto gains into precious metal investments. Before looking at how this conversion is beneficial, let’s go through the history of bitcoin and other cryptocurrencies.
History of the cryptocurrency
Created by the pseudonymous developer Satoshi Nakamoto, the first decentralized cryptocurrency in the form of bitcoin was released as open-source software in 2009. The unregulated bitcoin works through a blockchain made by distributor ledger technology and protected by strong cryptography.
In the 11 years that bitcoin has been around, more than 6000 other forms of cryptocurrencies or altcoins have been circulated in the online market.
Bitcoin was created using the SHA-256 hash function as its proof-of-work scheme. Shortly afterward, in 2011, another decentralized cryptocurrency ‘namecoin’ was produced with the unique feature of protecting internet censorship.
Litecoin, another successful form of cryptocurrency, was created in October 2011 using the scrypt hash function instead of the SHA-256. These forms of cryptocurrency have challenged the traditional paper currency by opening the doors of the market to the possibility of a digital monetary system.
Conditions of cryptocurrency
For the system of cryptocurrency to work, it should meet the following conditions:
- The system should record the distribution of the cryptocurrency units and maintain a track of its ownership.
- The system is decentralized and doesn’t require a central authority.
- It’s up to the system to decide if new forms of cryptocurrencies can be created.
- The ownership of cryptocurrencies can only be recorded cryptographically.
- Transactions in cryptocurrencies can be made by changing the ownership of the units.
- If more than one ownership claim of the same units is made in the system simultaneously, it works at most of them.
Rise and fall of bitcoin
In 2009, the mysterious creator of bitcoin sent a transaction of 10 bitcoin (BTC) to Hal Finney, a computer programmer. After two years in 2011, bitcoin was first used as a currency to buy two pizzas. According to reports, 10,000 coins were swapped to buy two pizzas. At one point in time, this amount equaled more than $55m, making the ordinary pizzas the most expensive ones to date.
Bitcoin rose from nothing, and in 2013, it’s one unit that stood at a worth of $22 per unit. This was the year of the cryptocurrency when endorsements turned its fate. In January 2014, the price of one bitcoin spiked at a staggering $1000. But in February 2014, the price dropped to the $600–$700 range.
As the bitcoin financial crisis set in late 2014 and early 2015, the cryptocurrency saw an alarming downward trend. In mid-2016, the price settled at an all-time low of $600. The digital money saw an incredible rise in its value with a record of 1,824% increase during December 2017. The price of one unit stood at $13,680.
But since the inspiring rise in its value in late 2017, bitcoin has seen numerous fluctuations in its price over the last two years. In January 2019, it was at its lowest at a rate of $3,441, which rose to $10,908 in June.
The recent coronavirus pandemic has brought about economic strains in the market, and bitcoin hasn’t been spared. In April 2020, during the early onset of the deadly virus in the US, the cryptocurrency plunged to a value of merely $166 per unit.
Why should investors protect their crypto gains by investing in precious metals?
Due to the extreme volatility of the cryptocurrency, investors are always on edge. Over the last 11 years, drastic fluctuations in the price of bitcoins have been reported. Sometimes, it took only a few hours to drop by hundreds of dollars for the price of one unit.
The numerous security breaches in the form of hacked accounts have also compromised the reliability of the developing currency. Amidst the current coronavirus pandemic, analysts have also predicted a further drop in its prices. Keeping these options in mind, if you’re looking to invest in long term savings, it seems like the historical form of currency (physical gold and silver) is your best bet for a hedge against impending inflation.
Gold is known as the haven of last resort due to its ability to sustain its value in times of economic crisis. Investing in gold bullion coins and bars will not only help you secure your savings for the inflation expected to arise due to COVID-19 but can also help protect your crypto gains from further losses.