How to achieve rational investment? Bitcoin plus precious metals is the best choice

For the past few years, the comment sections of major financial media platforms have been dominated by a debate over a hot topic: cryptocurrency holders firmly believe in the currency's ability to hedge in times of economic turmoil, while opponents believe that precious metals can do the job better.

However, a complete crisis portfolio should include both cryptocurrencies and precious metals, as the two assets are in fact complementary.

Bitcoin Price and the Financial Crisis

For thousands of years, gold and silver have been well-deserved safe-haven assets, which is unmatched by other assets. However, Bitcoin seems to be creating miracles in this regard. During the Cyprus debt crisis in 2013, the Russian ruble crisis in 2014, the Greek crisis in 2015, and the Chinese capital control in early 2016, the price of Bitcoin showed an upward trend.

The currency price had a similar reaction to Brexit in the summer of 2016, and even more so to the Reserve Bank of India’s demonetization and subsequent chaos late last year.

The recent “crisis” driving the price of Bitcoin is China’s continued capital controls and global political uncertainty. Bitcoin has responded to crises as it always has, which may not prove Bitcoin’s safe-haven qualities, but the phenomenon of capital inflows into the cryptocurrency during economic turmoil is likely to continue.

(Bitcoin price trend during the Cyprus crisis)

(Bitcoin price trend during the Russian ruble crisis)

(Bitcoin price trend during the Greek crisis)

(Bitcoin price trend during China's capital controls)

(Bitcoin price trend during Brexit)

(Bitcoin price trend during India's demonetization)

As of press time, data from coinmarketcap.com shows that the total value of the cryptocurrency market exceeds $50.9 billion, which is less than 1% of the current market value of precious metals. The current market value of precious metals only accounts for 2% of the global debt market. These data prove that the cryptocurrency market is small, so there is still a lot of room for development.

Precious metals performance

Over the past few years, gold and silver holders have experienced losses or low returns on their assets, while cryptocurrency holders have gained a lot. Currently, there is no futures market for Bitcoin and other cryptocurrencies, which happens to be an effective tool for manipulating the precious metals market.

But that doesn’t mean precious metals have lost their edge. What we should be looking at is an asset that has no counterparty risk and protects your property ownership.

Precious metals holders blame cryptocurrencies for their inability to handle government crackdowns, technical problems or unknown vulnerabilities, and as a result, they are reluctant to invest in them. There is a hint of stubbornness or envy in their accusations.

However, they should realize the significant advantages of investing in cryptocurrencies sooner than those who do not invest in precious metals. If the value of cryptocurrencies is hit or destroyed by some unforeseen events, the demand for safe havens will shift to other assets.

Once the safe-haven properties of cryptocurrencies are questioned, precious metals will benefit. In this regard, precious metals are the best choice for hedging cryptocurrency risks.

Regulatory impact

The cryptocurrency market has recently been affected by the Chinese government, with regulators imposing new rules on cryptocurrency exchanges, resulting in the freezing of some Bitcoin accounts. As can be seen in the chart below, Bitcoin prices usually react negatively to such interventions, but it should be noted that gold prices move in the opposite direction to Bitcoin.

At present, the national monetary system is based on debt. Both precious metals and cryptocurrencies can benefit from its inherent flaws, but holding one of them does not mean that you cannot invest in the other. Precious metals and cryptocurrencies should be a "partnership" in a crisis portfolio: investing in cryptocurrencies, gold and silver can all reap huge returns, while also being insured in advance for unpredictable events.

Editor's note: The author of this article is not a financial advisor and his opinions do not constitute investment advice. This article only represents the author's views and does not recommend that you make investment decisions based solely on this information or a single source of information on the Internet. The author of this article holds silver, bitcoin and ether.