Why Cryptocurrency And Precious Metals Are A Winning Combination
3 min readCOVID stimulus checks might have helped save the economy from a recession, but investors fear that inflation is just around the corner. The US government created over $3.5 trillion in 2020 alone, after all, and the effects of COVID lockdowns and labor shortages around the world are wreaking havoc on supply chains. Common products are out of stock, forcing businesses and consumers alike to turn to alternate avenues or pass on the delays to their own customers.
Crypto As An Investment
Uncertainty about sovereign money has driven many to invest in cryptocurrencies as a hedge against inflation. Speculation and other short-term market forces make most cryptocurrencies risky to invest in. Bitcoin, for example, was at over $60k in April and November of last year but fell to $35k in July. While some smart investors probably doubled their money, others have yet to see gains. If your goal is to have a stable hedge against inflation, crypto alone probably isn’t the answer.
The Time-Tested Solution
Precious metals, on the other hand, remain a time-tested solution for market volatility. Banks, sovereign nations, and private citizens have held onto gold, silver, and other precious metals as a safety net against unstable markets for thousands of years. This sort of investment is popular enough that there’s a special type of IRA for things like gold and silver, allowing people to use precious metals in a retirement account. Demand for these metals stays high due to their cosmetic appeal, relative scarcity, and more recently, due to their industrial applications. With silver and platinum, these industrial applications are on the rise. These two precious metals are found in computer chips, printed circuit boards, and hard drives, keeping their prices high in the modern era.
How Crypto Fuels Precious Metal Demand
Cryptocurrency’s volatility doesn’t prevent millions of people around the world from investing in it, using it for purchases, or turning their computers into mining rigs. All of these transactions fuel a massive global demand for chips and circuit boards. It’s estimated that about 19% of graphics cards produced in 2020 were purchased by Etherium miners. If crypto stays popular, mining will likely stick around, meaning silver, platinum, and other precious metals used in computer components will stay in high demand. Even with an eventual switch to proof-of-stake, crypto networks still need to run on computers. We might see a change in the processing power and energy drawn from those devices, but we’ll still see a big demand for chips and circuit boards from crypto enthusiasts.
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Balancing A Portfolio
Cryptocurrency and precious metals represent two completely different takes on investing. Cryptocurrencies are high-risk, high-yield investments, with the potential to make incredible profits over virtually any time span. Precious metals, however, are low-risk, medium reward. They’re not likely to lose 50% of their value over six months, but they’re also not likely to double in the same timespan. This makes these two options a great pair. By investing a responsible amount into a healthy spread of well-researched cryptocurrencies and hedging your bets with an investment into precious metals used as tech components, you can get the best of both worlds. You might not make the triple-digit gains that you could see from investing in crypto alone, but you’ll also miss out on having your whole account wiped out by a sudden market crash. It’s a win-win.
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