Widely read:
Anand Kumar
Bitcoin and gold are zooming up. That's nothing new. Things that people trade in go up and down. These two asset classes don't really interest me. From time to time, I just marvel at what makes people invest in these. Is the current bull run in the two also more of the same? Mostly, the answer is yes. However, I'll point out something that is different, even though I hate the phrase 'this time it's different'.
Gold and Bitcoin are both useless asset classes which produce nothing. In origin and nature, they could not be more different. Gold is the simplest form of wealth to understand - if it's actually gold, it's worth something. It has been used as a store of wealth and currency for millennia. Bitcoin is quite the opposite. In a physical sense, it does not exist - it is entirely a technological construct. Fifteen years after its invention, relatively few people understand what it is and why it's worth anything. I don't know how many people genuinely understand what a blockchain, token, or NFT is or what a crypto transaction actually does.
Yet, at this point, in global finance, both are functionally the same. They are both functioning as currencies that are being used as havens from the rain of US dollars, which has now become a flood. Despite their fundamental differences, convergence in their function as safe havens reveals a broader narrative about diversifying assets in times of economic uncertainty. The deluge of US dollars can potentially safeguard their wealth against inflation and devaluation. Anyway, that's the theory.
The US government is now adding some trillion dollars of debt less than every 100 days. What we see as the price of gold or Bitcoin is better thought of as the exchange rate between currencies. You can say that gold and Bitcoin are having a bull run vis-a-vis the dollar, or you can say that the dollar is bearish vis-a-vis the other two. Same thing. The supply of dollars is expanding so rapidly that plenty of people would rather hold gold and Bitcoin than the US currency. Moreover, it looks like this will go on for a while. Economic growth in the US is fine, and the tax base is expanding normally, so this appears to be the new normal.
Let's leave the global economy aside for the moment and get down to what concerns us—the sudden revival of Bitcoin and the rise in gold is turning too many heads in the domestic saver and investor class. These asset classes are—and should be—the domain of punters. Sensible investors should not base their financial futures on them.
However, the allure of quick gains has never been stronger. Compared to these, traditional investment returns look modest, even if they are not. The buzz around Bitcoin and gold taps into the collective desire for a financial safe haven that occasionally delivers the gains of a lottery. It's a place to park wealth that is theoretically less vulnerable to the whims of governments, with the added bonanza of great returns.
Yet, this is a dangerous illusion. The volatility of these assets makes them unsuitable for the average investor seeking stability and growth over the long term. True, some have made fortunes on the rapid ascents of Bitcoin and gold, but many more have suffered losses when their values plummeted without warning. This is a casino, and the odds are rarely in your favour. Therefore, while it's tempting to join the fray, driven by tales of overnight riches, the prudent course is to approach with caution. Diversification, research, and focusing on assets with intrinsic value that generate income over time remain the cornerstones of a sound investment strategy.
In any case, our primary attention must be directed towards domestic investments while keeping an eye on the broader international context. Living in isolation is seldom an option, particularly not in the current climate. The Indian economy and markets are doing great, and that's where we investors must focus.
Also read: Bitcoin's mirage of legitimacy gets entrenched
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