Trap 9. ‘Cryptos Are Like Gold Or RBI’s Digital Currency’

In recent years, the rapid rise of cryptocurrencies has sparked various debates, with many  comparing them to assets like gold or financial innovations like the Reserve Bank of India’s (RBI) digital currency, the central bank digital currency (CBDC). But they aren’t the same.

Cryptocurrencies are not backed by central banks, operate independently of central authorities, and are highly speculative and  volatile. CBDCs, on the other hand, are produced and regulated by RBI, and serve as digital legal tender that can be exchanged with fiat currency.

Says Arun Malhotra, founder of CapGrow Capital Advisors LLP: “Cryptocurrencies are not backed by physical assets like gold and their value is highly speculative. Governments may also set restrictions on their usage, trade and mining, which could lead to reduction in their value.”

The comparisons with gold is often made due to India’s strong affinity for gold. However, as opposed to gold, Bitcoin’s utility is currently limited to digital transactions and speculative trading. Gold also has intrinsic value due to its physical properties while cryptocurrencies lack that.

Says Sathvik Vishwanath, co-founder and CEO of Unocoin, an Indian crypto exchange: “Investors who compare cryptocurrencies with gold or RBI’s digital currency overlook key differences in stability, regulation and purpose. Cryptocurrencies are highly volatile and are affected by market speculation and technological changes, whereas gold has a long history of stability. RBI’s digital currency promises stability similar to traditional currencies.”

Misleading claims that blur the risk of cryptocurrencies by comparing them with gold or CBDC should definitely be a red flag. Always verify the credibility of investment advice and ensure you understand the fundamental differences and risks associated before committing your money.