One of the many dominating topics in the world of finance – specifically regarding crypto – is wondering if it is better to invest in precious metals, like gold, or digital currencies. While it is common to pit the two assets against each other, many are curious as to whether it is possible to purchase the precious metal(s) with cryptocurrency.
While you can trade, buy, and sell gold-backed or silver-backed crypto on exchanges like GoldExchange, can you buy the actual metals? Before we dive further into the investment aspect of cryptocurrencies, let’s take a quick look at what actually is cryptocurrency.
Crypto is most commonly known as “digital currency” which means it’s virtual cash and is exchangeable. Cryptocurrency uses encryption techniques to secure networks. One thing considered by many to be the most beneficial aspect of cryptocurrency is that it’s decentralized and not owned by any government or authority, any one can own it without any terms or conditions.
The short answer to the question ‘can you buy gold and silver with cryptocurrency?’ is “yes.” However, there are more layers to that answer. Yes, it is possible to buy gold and silver with crypto, but it has its fair share of pros and cons.
Since Bitcoin’s 2009 debut, it has gone on to become a convenient payment method, even going so far as to be adopted by many businesses. Some of these businesses include precious metals and bullion. From Bitcoin’s popularity came the emergence of other cryptocurrencies, whether they be competing with Bitcoin or want to create their own thing.
There are several ways one can purchase gold and silver with cryptocurrency, particularly Bitcoin. One popular method is through brokers, of which there are plenty to choose from. Moreover, there are a wide variety of exchanges that offer these services.
In simple terms, it is possible to buy gold and silver with cryptocurrency. However, this is not the only route to take when buying these precious metals. As a matter of fact, purchasing stablecoins that are backed by them is essentially the same as buying these coveted assets with crypto. Why? Because they are connected.
For the longest time, precious metals have been vital commodities within the trade market. With gold prices escalating, the cryptocurrency trade market is focusing its attention on gold-backed crypto tokens. Digital currency is infamous for its volatility, so to curb these effects on investors, crypto developers produced stablecoins. While this idea is new, it has the potential to make cryptocurrency as a whole considerably more stable, hence the name “stablecoin.”
The concept of the stable coin is a compelling one. A coin or token represents the value of a precious metal. For example, one gram of gold will equate to one coin. The gram of gold is stored by a reliable custodian, like a third party, and is tradeable with other coin holders.
The coin’s price will always equal whatever the current gold rate is. Should the cryptocurrency grow in popularity, then the price of the coin could rise in value and reach the point where it is greater than gold’s value. If it fails to take off, the value will remain as the value of the single gram of gold. In this sense, it is akin to a built-in stop-loss.
The same can be said for silver-backed stablecoins. These types of stablecoins are exactly as it sounds – cryptocurrencies backed by silver – and similar to gold-backed crypto in that they are tied to the value of silver.
All in all, buying a stablecoin backed by gold or silver is like buying the actual metals with crypto. The stablecoin is pegged to these coveted assets, therefore purchasing them is an alternative to obtaining the precious metals themselves.
When buying gold and silver with crypto, there are a few things to remember. The first is that, as mentioned earlier, cryptocurrencies are notable for being volatile. The value of Bitcoin has undergone an array of price fluctuations more frequently than any other form of currency. Because of this, one should remain vigilant.
Another factor is irreversibility. Crypto transactions are instantaneous as well as irreversible. With that said, transactions are refundable by the person or entity who is the recipient of the payment; it all depends on their Refund Policy.
Finally, there is transparency. All cryptocurrency transactions are public and traceable. Moreover, they are permanently stored on its network based on the address (ex. Bitcoin address) of the user. Therefore, anyone can see the transactions and balance of any address. It is for this reason that one should consider creating numerous addresses or wallets for privacy protection.
*This is not financial or investment advice. Remember to do your own research and speak to a professional advisor before parting with any money.