Dubai: Investors have persistently compared profits that can be earned by buying Bitcoin, gold and stocks, and weigh whether these assets are worth investing in a market that often turns volatile.
UAE-based veteran investors shed light on whether or not you should now buy, sell or briefly hold onto these investments, while also evaluating how you can make the most profits when doing so.
“While Bitcoin and gold, on average, have given higher profits than stocks in the last five years, gold has beaten Bitcoin and global stocks hands down when it comes to consistency of returns,” said Brody Dunn, a Dubai-based investment manager with over three decades of investing experience.
“Regardless, all the three assets are proven widely to be an effective way to store value. One of the most common reasons to invest in either gold, Bitcoin or stocks is that they grow your money during economic uncertainties globally.”
While Bitcoin and gold, on average, have given higher profits than stocks in the last five years, gold has beaten Bitcoin and global stocks hands down when it comes to consistency of returns
Bitcoin soars, gold doesn’t rise as much
While Bitcoin jumped nearly 1,300 per cent in 2017-2018, gold saw returns of around 6-7 per cent. In 2019-2020, 2020-2021, 2021-2022, and in the year so far too, Bitcoin gained significantly more than gold, but it wasn’t as much as it did five years ago. Gold, however, rose 13 per cent this year.
“Unlike the gold industry, the cryptocurrency market lacks stability. Gold has been there with us for ages; it is among the most liquid forms of assets and investments and has always given positive returns over long periods,” explained Aditya Srivatsav, a market analyst based in Abu Dhabi.
“Also, digital assets carry high risk due to volatility. Investors have already seen Bitcoin skyrocketing and plunging to record lows in a short time. So, looking at this, conservative investors are inclined towards low-risk traditional assets.”
However, Bitcoin proponents believe the fundamentals of the world’s largest digital token are positive, even if prices are currently in a slump, and deems the period of prolonged decline known as the ‘crypto winter’ as short lived.
Will Bitcoin prices stay slumped for long?
“I do not expect cryptocurrency prices to stay deflated in the long term. We mustn't also forget that compared to other assets, the Bitcoin market is nascent and is currently affected by macroeconomic headwinds,” said Brian Deshell, a UAE-based cryptocurrency trader and analyst.
“There is still a lot of uncertainty surrounding Bitcoin and other digital currencies. Regulations are still being developed, and there is much speculation about these currencies’ future. This uncertainty can lead to further price swings as investors try to predict the market’s direction.”
Now how about investing in stocks instead? While stock market investments have widely proven to effectively grow long-term wealth, over several decades, the average global stock market return is just about 10 per cent per year – below the investment returns of both gold and Bitcoin.
“Even though stocks worldwide have given below-than-average returns, it’s been more consistent than Bitcoin, but not as much as gold. Moreover, this is an average across the entire market — some years will be up, some down and individual stocks will vary in their returns,” Srivatsav added.
Unlike the gold industry, the cryptocurrency market lacks stability. n the other hand, gold has been there with us for ages
Stocks are worth investing for long-term goals
“If you have some savings to invest, feel ready to buy stocks, and don't need the money for at least five years, then yes, jump in. Even when the market has lows, if you're invested for the long term, you'll have time to recover losses.”
Dunn too agreed that it’s easier if you invest in stocks only for long-term goals, while adding that the reason you don't invest money you may need in the long term when buying stocks, is because it’s highly possible the stock you purchase will drop in value in the short term.
If you need those funds for a large purchase or emergency, you may have to sell your investment before it has a chance to bounce back, resulting in a loss. But if you’re investing for the long term, those short-term drops aren’t of much concern to you.
“It’s the compounding gains over time that will help you hit your retirement or long-term financial goals,” Dunn further explained, referring to earning returns on both your original investment and on returns you received previously by the ‘power of compound interest’.
Verdict: What is worth buying now – Bitcoin, stocks or gold?
Investment giant Goldman Sachs argues there is still much speculation and volatility surrounding Bitcoin. As the top cryptocurrency has also failed to deliver on the idea that it would act as a hedge against global inflation or extreme market volatility, odds have been stacked against the asset.
“Right now Bitcoin is trading like a high-risk company stock. So when markets rise, those companies can be investments with market-beating returns, but when markets drop, investors seek out less risky assets such as high-value stocks and gold,” analysts at Goldman Sachs wrote in a note.
Until 2022, investors thought they were getting the best of both worlds with Bitcoin -- the potential for higher-than-average annual returns plus a safe avenue to store value. However, while Bitcoin failed to deliver neither this year, gold did. But the future of crypto has not been written off just yet.
“Bitcoin is similar to gold and stocks in a way that it has become an alternate investment for some investors. It has the potential for many uses and can be a worthwhile investment if used in the right strategy,” added Deshell.
“However, when it comes to deciding which a better buy is for you, your risk tolerance, investing strategy, how much capital you have to use, and how much you can tolerate losing, comes into play. One thing’s for certain, as Bitcoin is much more volatile, which makes it a riskier investment, it’s prudent to not invest in it as much as you set aside in gold or stocks.”