Latest news about Bitcoin and all cryptocurrencies. Your daily crypto news habit.
Cryptocurrencies backed by precious metals might seem like a new arrival to the digital money world, but the idea of basing money on precious metals is not new. E-Gold emerged in the 1990s as a digital currency backed by gold.
The platform proved to be very popular during its heyday, but is now a shadow of its former self after authorities cracked down on co-founder Daniel Jackson.
While others have tried to follow in the footsteps of E-Gold, the last few years have ushered in the rise of cryptocurrencies backed by silver and gold. These coins maintain bullion in reserve to underpin every coin in circulation.
Investors who purchase these types of stablecoins, like SilverCoin, maintain the ability to redeem digital holdings for physical bullion. Precious metal-backed cryptos also have the advantage of a built-in price floor.
These cryptocurrencies can't dip below the spot price of the underlying precious metal. But if the coin proves to be popular and traded heavily, the cryptocurrency value could rise beyond the price of a physical ounce of silver or gold.
Silver and gold-backed cryptocurrencies are popular in 2020 due to financial turbulence from the coronavirus. Both represent easy ways to buy, sell, and trade precious metals.
Some precious-metal-backed cryptocurrencies are fractionalized, meaning any amount can be bought. The ability to purchase in fractional amounts opens up precious metal access to a wider swath of people who might not be able to afford a gram or an ounce of an expensive metal like gold.
Some wonder if there is a difference between cryptos backed by silver and gold (other than price). Are there advantages to purchasing or investing in one type of coin vs. another?
Keep reading to understand some key benefits and drawbacks of silver and gold-backed cryptocurrencies.
Silver-Backed Cryptocurrencies: Volatility At A Great Price Point
A big advantage silver-backed cryptos have is the price. Silver's spot price remains far below gold's. This means investors, especially those with smaller amounts of spending money, can purchase more cryptocurrency and build a larger investment portfolio.
While gold has long been the darling of investors, the potential for silver from a price standpoint is actually greater than gold. While silver will not reach the levels an ounce of gold goes for, the metal does tend to rally "higher and faster" than gold.
Why? Silver's market share is much smaller than gold and has lower liquidity since the vast majority of silver emerges as a byproduct of manufacturing.
Overall, silver is more volatile than gold. This has positives and negatives for investors into silver-backed cryptocurrencies. It does open up potential opportunities to reap large returns on investment if the price of silver starts to move upward.
However, the spot could dip low, meaning investors could stand to lose money (though the asset will never go to zero).
Gold-Backed Cryptocurrencies: Liquidity & Ease Of Storage After Redemption
One of the biggest advantages that gold-backed cryptocurrencies have over silver is liquidity. While both metals are easy to buy, sell, and trade, there is a slide nod to gold in this department due to the greater overall demand and supply of silver.
Redeeming digital coins backed by gold will also be an easier process than for silver. Thousands of dollars of gold can be held in the palm of the hand, making storage of redeemed physical bullion a breeze.
Having to manage large amounts of silver bars can become a burden quickly and a significant security risk if the owner does not have enough secure storage space to hold bullion.
Gold is also one of the best deflationary assets out on the market today. Holding gold-backed cryptocurrencies assures holders of value stability during turbulent economic times.
In some instances, even the fluctuations of the silver spot price might be too much for some investors to stomach. Gold is a very stable asset that functions as a great hedge against inflation.
Silver vs. Gold-Backed Cryptocurrencies. What Is The Best Choice?
Both types of coins backed by precious metals are useful investments. Gold and silver have been long regarded as valuable and as a stable store of value, even in uncertain times.
Choosing between the two largely comes down to personal preference. Gold-backed cryptocurrencies are more stable than silver-backed ones, who do have a better chance of 'breaking out' and rising in price.
However, the relative volatility of silver might be too much for some investors to handle. Choosing one or the other depends on the particular investment strategy a person uses.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.