Precious metals and cryptocurrencies are both stores of value. That is, they are both investments that rely on the limited supply of their underlying asset to maintain value. Essentially, the world can only mine so many precious metals and can only mine so much of each given cryptocurrency, with diminishing returns in both cases.
The reason why you might want to invest in both is that they are currently low correlation assets. That is, the movement of the price of precious metals does not tend to move in the same ways as cryptocurrencies move.
For example, gold tends to remain stable in price, generally maintaining its value and slowly increasing over time. But most cryptocurrencies are quite volatile, moving up and down as speculation on their price drives them one way or the other.
This difference in how their prices move means that by owning both, you decrease the risk that they all fall simulatenously. Additionally, having gold keeps your portfolio steady in the face of many different market events. In contrast, crypto gives you a solid chance at making significant gains, although with the risk of substantial losses as well. This combination makes for a good spread of different kinds of risk.
How to invest in precious metals and cryptocurrencies online
You can buy precious metals online through a variety of methods:
- By investing in precious metal ETFs (Exchange-Traded Funds).
- By purchasing mining stocks.
- By trading precious metals’ futures contracts.
- By picking up a precious metal backed cryptocurrency.
It may be difficult to just buy gold online and store it in your house. As such, there are several more efficient alternatives available to you.
As an example, you might buy shares of the GraniteShares Gold Trust (BAR) to gain exposure to gold through an ETF. Investing in a Gold ETF grants you exposure to gold through a fund that keeps an equivalent value of gold stored in vaults.
You can buy crypto online through a crypto exchange. Popular exchanges include Binance and Coinbase. When you purchase crypto on an exchange, you can choose to keep it either in their online wallet or buy your own crypto wallet and store the crypto on there.
Make sure to look through all their fees to understand how much it’ll cost to purchase and sell your crypto on their exchange. You can also compare the rates between different exchanges to be sure you’re getting the best deal.
As an example, you might buy Ethereum on Binance and keep it in your Binance coin wallet. This puts the Ether at risk of being hacked, but it’ll be more expensive to hold and less convenient to trade with if you move it into an offline wallet.
A Shared Option?
Recently, a third option has become more prominent, which is to but a precious metal-backed cryptocurrency. These are stablecoins that have a reserve of precious metal backing each token that can be directly exchanged for.
Gold-backed cryptocurrencies like Gold Coin are the most popular versions of these. You can buy Gold Coin online as a cryptocurrency, gaining exposure to the crypto world while maintaining the stability of a precious metal. Because you can exchange each token for its underlying precious metal, its price should not be able to dip below the price of the underlying asset.
Reasons to invest in both
One of the main reasons investors are currently looking to both precious metals and cryptocurrencies is concerns over a potential market crash, government instability, and inflation risks. When there is concern over a large variety of different investment risks, looking to scarce resources as safe havens is a common tactic to secure one’s money.
Both precious metals and cryptocurrencies fulfill that need, although in different ways.
Precious metals because they have a long history of value tied into them and are already stored securely all across the world, with no single or few entities controlling the supply. This longevity means their value is likely safe in the long-term, and so while they may not provide the large returns stocks or bonds sometimes can, precious metals can provide a storehouse for value.
Cryptocurrencies are quite the opposite in terms of longevity. They are a brand new investment class with little history backing up their value. What they do have is scarcity and the potential to increase in value as more people take them up as a store of value. This potential upside in value makes crypto lucrative as a complement to precious metals in a portfolio.
Because we can’t know that either precious metals or crypto will retain their value in all events, diversifying across both increases the chances that at least one will retain or even exceed its current value in a catastrophic event.
Finally, there are different privacy and regulatory issues with purchasing and hold precious metals vs. crypto. Because we don’t know how these issues will be resolved over time, keeping both open as options gives you more ability to keep the privacy and regulatory standards you’re looking for.