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Investors pushed to commodities, bitcoin due to economic stagnation

on Dec 16, 2019
Updated: Mar 11, 2020
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  • The current economic slowdown is pushing investors to commodities and bitcoin.
  • Unlike cash-backed investments, commodities hold real value, meaning they are not affected by inflation.
  • Bitcoin offers a formidable hedging option due to its mathematical scarcity and the fact that it is a functional currency that is not affected by inflation.

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2019 has been one of the most “unusual” financial years, from the China-US trade war to last week’s UK election and then the Brexit uncertainty… As the investment space remains fuzzy, investors are looking for better ways to shield their capital.

Commodities such as gold and silver have become a darling to many, due to their inverse relationship with stocks and fiat currencies. But bitcoin is also proving to be a formidable hedge during difficult economic times.

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Commodities

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When it comes to commodities, they are primarily considered to be good hedges as they hold real value. Assets with real values are cushioned against inflation as they are already adjusted for the same, making them perfect value-holders during recessions.

The ongoing shift from cash-backed assets to commodities such gold is turning the once bearish market to a bullish one. Precious and semi-precious metals specifically have been experiencing a bounce that appears to be a bottom.

Experts are interpreting this to mean that the market is seeing a top to the steady growth under Trump. Investors are also taking advantage of the current tough times to divest away from over-purchased to more stable investments.

Bitcoin

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Bitcoin means different things to different people: Some consider it the ultimate tool for safely purchasing stuff online while others see it as a cool and fun way to hold digital currency. Bitcoin, like most commodities, offers an investment that is different from fiat currencies, which are easily swayed by inflation. But to an inverse relationship with conventional money and cash-based assets, bitcoin presents yet another excellent hedge against an economic downturn.

What makes bitcoin a unique investment is its mathematical scarcity, giving it a competitive edge against common stocks as well as some commodities. Also, unlike precious metals, bitcoin does not have new deposits.

It has been argued before that the very nature of bitcoin makes it valueless since it is not a physical commodity and thus lacks tangible value other than an agreed worth.

But when compared to fiat currencies, the argument doesn’t hold since some governments can provide backed-currencies, but they’re not entirely foolproof. Currencies move to dark economic times with the respective nations.

Bitcoin is, however, not affected by a country’s success or failure as it exists independently, making it a uniquely stable commodity while boasting of a currency’s functionality.

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