Introduction: Gold has been used as a reserve currency for centuries, owing to its stable and always appreciating value. Gold is a rare metal of high value, owing to its luster and demand within the market. Countries store gold and view it as a reliable alternative to fiat currencies.
However, recently it has been observed that the gold market has become quite volatile, which can lead to the inference that several assets can replace gold as a reserve currency. Cryptocurrency is the most valuable and relevant one to exist currently.
The official trading software has witnessed the exponential growth of Bitcoin and other Altcoins in value. Let us talk about how feasibly crypto can overpower Gold as a reserve currency or whether it is feasible at all.
The price drops and sudden volatility
The recent price drop per ounce of Gold was the largest within the last 7 years. This happened when it dropped to $1932.38 from well above $2,000. This volatility has been noticed to become more frequent as time passes.
This is because gold will not be able to catch up with the modern market for much longer. However, cryptocurrency is based on the internet and is made for the internet. You can therefore predict which one out of the two has more chances of surviving the modern market.
Similarity between Gold and Cryptocurrencies
However, Gold and Cryptocurrency share many similarities. The first similarity that is worth mentioning is the lower rate of volatility than Fiat currency, which stems from a limited supply. Bitcoin has an advantage over gold, which is its effective defense against inflation.
As cryptocurrencies are decentralized, they cannot be controlled or seized by authorities. However, the volatility issues faced by cryptocurrencies are not the same for Gold.
The cryptocurrency market is very smaller than traditional markets therefore; small changes in demand affect the value of currencies largely.
This can be avoided by launching a cryptocurrency that is backed by actual Gold available in the market. If a framework incorporating both cryptocurrency and gold is devised, the scene will change. The crypto market will grow even further.
Obstacles that are stopping Crypto
The biggest roadblock between Cryptocurrency and its status as a reserve currency is its legitimacy and trustworthiness. This is changing, with time. More people are becoming crypto-aware and countries are embracing cryptocurrencies.
Cryptocurrencies are getting closer to being treated as a reserve currency, which is still a very far-fetched dream. Countries with high inflation rates have started taking crypto payments, owing to their resistance to inflation.
Venezuela is one of these countries, and the inflation rate in Venezuela reached 2,616%. Taking the case of Venezuela, other countries can learn how Cryptocurrencies can act as a reserve currency.
Cryptocurrencies hold over Gold several other advantages. These advantages include the ease of transfer from one person to another, ease of storage, and lower chances of being scammed while making transactions. These points push for the positive adoption of cryptocurrency. However, it can be stated that cryptocurrency has a long way to go before it is even considered as a reserve currency in an economically stable or growing country.
Moreover, the adoption of cryptocurrencies in countries and localities with low efficacy rates is not feasible. However, Gold can be utilized all around the world. Thus, Cryptocurrency is not yet efficient enough to be considered as an asset of that stature.
Another issue that looms over the head of cryptocurrencies is that governments are not able to tax investors the way they want to. However, gold is a highly taxable metal, which implies that corrupt governments will always support gold over cryptocurrencies.
However, one must mention the traction cryptocurrencies have caught on and consider the fact that there is hope for it to be accepted as a reserve currency.
Bitcoin has grown to a previously unthinkable extent. Thus, it can be stated that the chances of Crypto surpassing Gold as a Reserve currency is low, but it is still there.
The stigma around Cryptocurrency needs addressing by industry experts. This addressing will help people understand how cryptocurrency is not just a fad but also a boon that can take the world economy to another level. However, petty politics and corruption in Banks and Governments are always going to oppose it.