Ethereum vs. Gold

Gold, Ethereum, and Intrinsic Value

The potential issue with investments that have lower intrinsic value like gold and especially ethereum is that the floor is set at this level of value, gold’s value apart from the higher value that people who buy gold put on it. Gold does have some usefulness, apart from its investment value, and therefore if everyone who owned gold for investment purposes sold it, it still would maintain at least some price.

This would involve a great drop in price though, more so than we would see stocks plummet, as the earnings from stocks would see them hit a floor of value long before gold would. This is even more so with bonds and bonds actually represent their intrinsic value by their very nature, measured by their yields and their relative value.

Ethereum has no intrinsic value whatsoever, save for those who may wish to possess a certain amount of coins as a means of exchange. Given that almost all of the interest in ethereum has been from the investment side, whatever floor, how low it could drop if investment interest went away, would be close to zero for sure.

The proportion of intrinsic value with an investment is nowhere near as significant of an issue as a lot of people may think, and while we may say that ethereum and other cybercurrencies could drop to close to not being worth anything, this is the case to a high degree with gold as well.

Gold’s price depends on investment interest and speculation as well as ethereum does, and both primarily depend on it, but this has been the case with gold for thousands of years and after all this time, a lot of people still value it and desire to buy it.

Ethereum of course has no real history apart from its being bid up all the way to the sky and then giving back a good portion of its gains, but we’ve seen such things with gold as well, although the movements with gold have not been so quick to develop. Since 1971 though, we’ve seen gold explode to the upside, give most of it back, go up almost as much, and give quite a bit of those gains back, up and down like a yo-yo essentially.

It’s not that ethereum and gold’s movements are really that different, it’s more like ethereum packs in their bull and bear markets over a period of a few months rather than a few years like gold. This is the nature of speculation though, where assets go through boom and bust periods, and the real trick to profit from all this is to try your best to be on the right side of things, and that principle applies to both gold and ethereum.

A lot of this tendency toward more extreme movements does come from the fact that both types of investments are mostly driven by not changing intrinsic value but from speculation, from momentum specifically, and these momentum driven moves can be pretty extreme indeed, for both gold and ethereum.

What we want to realize is that a lot of the value of investments depend on what the market is willing to pay for them over time, and this is even the case with stocks to a large degree, where changing investor sentiment can pretty quickly see them lose half of their value or more, just from people pulling some of the money that is invested in stocks out of them and putting the money elsewhere for a time.

Ethereum and Gold Are Both Very Challenging Long Term

Given that we know so little about how even the medium-term market for ethereum may play out, let alone its long-term prospects, looking to hold ethereum longer-term involves much uncertainty. Where there is uncertainty, there is risk, as we don’t worry about being uncertain about how much an investment will make, good versus great returns, we concern ourselves about how much it might lose over time.

We do know a lot about how gold functions in different environments, and there’s no investment that has anywhere near of a rich history that gold has, and in modern times at least, we know that a long term view of gold does indeed involve a lot of risk and can be very difficult to manage.

This is especially true when we look at the big ups and downs that gold has experienced since 1971, when the U.S. got off the gold standard and we saw gold’s price being more determined by the market. Gold has been pretty volatile since then, and there have been periods where investing in it has proven to be quite lucrative indeed.

However, this upside movement has been limited to periods shorter than what we would normally consider to be long term, and we have not just been able to hold it over the long run and expect to see things move forward the way we’ve been able to do with stocks.

In order to understand why the long-term view of something like ethereum would be so challenging, looking at a long-term position in gold compared to stocks can shed some light on this. The real reason that gold is less desirable of an investment long term is that its volatility must be managed, more so than with stock positions.

While we may benefit from timing stocks, we can often get away without this, although with gold the need for timing is quite a bit higher since the movements are large and they don’t really produce long term trends where we can ignore the dips and get away with it fairly well a lot of the time.

While we don’t have anywhere near the history with ethereium than we do with either gold or stocks, and therefore the long-term trend of ethereum is unknown at this point, what we do know is that is an incredibly volatile investment.

Ethereum and other cybercurrencies need to be timed like perhaps no other investment in history. Given the pure digital nature of ethereum, there really isn’t anything restraining or influencing its price other than pure market demand. We’ve already seen how much this demand can vary, and we’re at best a long way away from a point where we could say that we could hold ethereum and ignore these influences with any real degree of safety.

However, this does not mean that we should not invest in it, and what has not been established is whether we can just buy and hold over the long haul with it. At this point, doing this would involve too much uncertainty to make a lot of sense.

Investing in Ethereum vs. Gold

Of the two, gold is clearly the more conservative and reliable investment, even with the gold market declining. We’ve been in a bear market with gold for a few years now, and although people who are looking to sell you gold don’t speak of bear markets, they do exist and while they do, it really doesn’t make that much sense to invest in gold.

Successful investing is all about getting into something at the right time, and the right time for gold is when both the short-term outlook and the particular time horizon that we’re looking to invest in are both positive.

If we’re looking to hold gold or anything for a few years, but the current trend is against us, if we invest now we’re just setting ourselves up for a probable loss during this present move against us.

This all applies to ethereum as well, and much more so actually. If we were looking to take part of our portfolio and use it to sit on some ethereum, and the price is really falling, the only reason to get in on this right now is if we are seeking to lose money instead of make it.

If we’re looking to speculate on something going up, we at least need to see this happening to some degree, before we leap. Investing should not be viewed as a crapshoot or a guessing game, and while it does involve both probability and guessing to some degree, we need to act when the probability is on our side and ensure that our guesses be informed ones based upon market conditions.

We need to do that with gold as well and with any investment, and what differs is the degree of attention that is required to various types of investment. For example, bonds that are going to be held to maturity would not need any attention, real estate would involve very little attention, stocks would require more, gold even more, and ethereum much more.

We could buy some gold and not check it for 6 months or a year and not really be exposed to that much risk, but if we try this with ethereum, we could be exposing ourselves to a massive hit, as ethereum can move a lot indeed in 6 months.

We should not be paying so little attention to any investment though that can really fluctuate, especially gold and even more so ethereum. Given that ethereum investing requires more attention, it will also require more skill to manage, and those who like to just buy something and forget it will not find this sort of investment suitable to them at all, but the same could be said of gold as well, albeit to a lesser degree.

Both gold and ethereum can prove quite profitable though with the right degree of attention, but we do need to make sure that we’re both getting in and out of these investments at the right time.