There are some assets whose value does not depreciate over time. Gold is an example of this. For centuries, gold has been considered the safest for investment. The reason for this is that like the currency of a country, its value does not depreciate over time. It is not affected by inflation like any currency.
There are many types of threats to the currency of a country. Inflation is the biggest of these. Events in other parts of the world also affect the currency. Due to high inflation, the value of currency of many countries has fallen drastically. Examples are Zimbabwe and Venezuela.
To avoid the effect of inflation, people invest in assets like shares, bonds, real estate. This is because their value generally keeps on increasing over time. However, even these assets sometimes see big downsides. This means that most assets carry some kind of risk.
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In this sense, gold is the only asset on which people have the most reliance. It has given people a means to preserve their wealth in uncertain times. It has many characteristics. It doesn’t get worse over time. It is easy to carry it from one place to another. It can be easily converted into another asset.
Since the supply of gold is limited. Hence, volatility in other asset classes such as equity and real estate has relatively less impact on it. This is the reason why not only common people but also governments and central banks around the world invest in gold.
Oil is also being seen as a medium whose value is not going to decrease. It is available in limited quantity in the world. Because of this, its prices keep increasing continuously. There has been a sharp jump in oil since the start of the Ukraine Crisis.
A new asset has emerged in the digital age, which people are relying on. That is bitcoin and other cryptocurrencies. People in Russia and Ukraine are buying bitcoin and other crypto. They think that the value of their country’s currency may decrease, but the value of bitcoin is not going to decrease.
A report by Goldman Sachs states that bitcoin could grab a significant portion of gold’s market share as a safe asset in 2022. The reason for this is that the recognition of bitcoin is increasing worldwide. The market capitalization of bitcoin is currently $700 billion. In comparison, the total investment in gold is valued at $2.6 trillion.
Bitcoin has gained 25 per cent in the past month, despite a major drop in stock markets due to the Ukraine Crisis. Although bitcoin does not have a practical use like gold and oil, people are still choosing to invest in it. The total supply of bitcoins cannot exceed 21 million.
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