Babel Finance’s $80 million funding round is not its first. Last year, it secured $40 million from Tiger Global Management, Sequoia Capital China, Zoo Capital, and other big institutional investors.
Del Wang, the company’s CEO, commented on the move, saying that the crypto sector is “full of opportunities and hidden hazards.” The funding round also supports the long-term path for crypto, and that it has the potential to replace gold and its position in the present financial system, he believes.
For decades, gold investors have extolled the precious yellow metal as the ideal “store of value,” shielding their investments from the destructive effects of inflation. Then along comes Bitcoin. Some cryptocurrency supporters have recently claimed that crypto can keep up with growing prices better than gold. They say it will be even more independent of the dollar and other mainstream financial assets because it exists wholly outside the current financial system.
Traditionally, investors concerned about inflation and the loss of fiat currencies’ purchasing value have turned to gold. Because of its scarcity and durability, the argument is that gold is a greater store of value than paper money, which has an infinite supply and is backed by the government.
However, has gold been stable and a good store of value? In 2021, gold’s limitations as an inflation hedge were even more evident. Gold was down as consumer prices rose at their fastest rate since 2008. On the other hand, Bitcoin and many other crypto assets enjoyed growth in value, despite recent volatility.
Del Wang believes that Bitcoin and crypto assets will increasingly become mainstream for the financial assets industry and investors in general, citing that several financial institutions have already shifted from traditional commercial banking to the realm of crypto. As a result, Bitcoin, crypto assets, and gold should have a growing correlation.
Del Wang suggests that as crypto assets and Bitcoin become more widespread investments, investors would begin to regard both assets identically. In gold’s defense, some argue that volatility is crypto’s weakness. Gold and other precious metals are more conventional stores of value. In theory, they aren’t nearly as volatile as crypto and therefore are not likely to trade near zero in terms of value.
Del Wang and his Babel Finance crypto team looked into one indicator of an asset’s efficacy as a “store of value”: the Sortino ratio. It is a metric that modifies returns to account for volatility. According to a five-year chart on the casebitcoin.com website, Bitcoin has consistently outperformed gold’s Sortino ratio despite its reputation for increased volatility. So gold is very volatile, and Bitcoin’s rapid gains have made the increased risk worthwhile.
Evidence points out that there is potential that crypto assets and Bitcoin could replace gold and its position in the present financial system. Even during extremely volatile times, Bitcoin shines as a store of value over a medium to long-term horizon. Even more so than gold.
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