'Gold and Bitcoin are both useless asset classes': Why average investors must avoid gold, cryptocurrencies (2024)

Bitcoin and gold are zooming, which is not new, because the things people trade in go up and down. These two asset classes don’t interest me, and from time to time, I marvel why people invest in these. Is the current bull run in the two more or less the same? The answer is, mostly, yes. However, I’ll point out something that is different.

Gold and Bitcoin are both useless asset classes that produce nothing. In origin and nature, these couldn’t be more different. Gold is the simplest form of wealth to understand; if it’s physical gold, it’s worth something. It has been used as a store of wealth and currency for millennia. Bitcoin is quite the opposite. In 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, 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. At least, that’s the theory.

The US government is now adding nearly trillion dollars of debt every 100 days or so. What we see as price of gold or Bitcoin is better thought of as exchange rate between currencies. You can say that gold and Bitcoin are having a bull run vis-a-vis the dollar, or that the dollar is bearish vis-a-vis the other two. The supply of dollars is expanding so rapidly that plenty of people would rather hold gold and Bitcoin than the US currency. Moreover, it seems as if this will go on for a while. Since the economic growth in the US is fine and tax base is expanding normally, this appears to be the new normal.

Let’s leave aside the global economy and consider what concerns us. The sudden revival of Bitcoin and 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 these. 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 gains similar to that from a lottery. It’s a place to park wealth that is theoretically less vulnerable to the whims of governments, with the added bonanza of good 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. Though some have built fortunes on the rapid ascent of Bitcoin and gold, many more have suffered losses when their values plummeted without warning. This is a casino, and the odds are rarely in your favour. So, 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.

Our primary attention must be directed towards domestic investments, with an eye on the broader international context. Living in isolation is seldom an option, particularly in the current climate. The Indian economy and markets are doing great, and that’s where the investors must focus.

The Author is CEO, VALUE RESEARCH

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