How to Invest in Cryptocurrency If You Prefer Physical Assets

For centuries, collectors have sought out rare and valuable items - coins, gold, silver and antiques - each with a unique history and value beyond its material composition. Like the numismatist who wonders “how much is a 1936 buffalo nickel worth?” investors inquire about the rarity and significance of assets before they are ready to make a financial commitment. Now this pursuit of valuable assets is moving beyond tangible collectibles to digital investments such as cryptocurrency.

But what if you prefer the safety and familiarity of physical investments? If you've always relied on gold, silver or rare coins as a hedge against inflation, you may be hesitant to enter the world of digital currencies. However, the principles that underlie these assets  (scarcity, authenticity, and long-term returns ) are the same ones that drive the value of Bitcoin, Ethereum, and other cryptocurrencies. So, now we are going to discuss the world of cryptocurrencies and find out if they are a safer choice for cautious investors.

Cryptocurrencies: Are They Similar to Traditional Investments?

Despite the fact cryptocurrency is a digital asset, it mostly reflects several key investment principles common to gold, silver, and collectibles. And due to understanding these similarities traditional investors may feel more confident about entering the cryptocurrency space.

1. Limited supply creates value

One of the defining features of gold, silver, and rare coins is their limited supply. Gold cannot be artificially created, and historical coins become increasingly rare over time due to wear and tear, destruction, or collecting. The same principle applies to bitcoin, with a hard limit of 21 million coins. Once all bitcoins are mined, there will never be any more, so scarcity is a key factor in determining its value.

Interesting fact: Over 19 million bitcoins have already been mined, which means that only a small portion remains to be mined, adding to the scarcity further issues over time.

2. Inflation Insurance

For decades, gold and silver have been safe assets that protect wealth from inflation and currency devaluation. Central banks print money, causing fiat currencies to lose value over time, but tangible assets retain their purchasing power.

Bitcoin and some other cryptocurrencies operate outside of traditional banking systems. Bitcoin, in particular, is often referred to as “digital gold” because of its ability to serve as a store of value in uncertain economic times. While cryptocurrencies are more volatile than precious metals, their long-term path shows growing adoption and a growing role as an alternative hedge against inflation.

Case Study: During the 2020-2021 global economic crisis, Bitcoin’s price surged from $7,000 to over $60,000, which shows increased demand as investors sought alternatives to depreciating fiat currencies.

3. Collectible and rarity-based valuation

Investors in rare coins understand that a coin’s historical significance, mint condition, and scarcity determine its value. The same logic applies to NFTs (Non-Fungible Tokens) and rare digital assets. Some NFT collections, like CryptoPunks or Bored Ape Yacht Club, have increased in price due to their rarity and demand among collectors.

Even though NFTs are controversial in traditional investment circles, their growing adoption in digital art, gaming, and ownership verification suggests they could become an essential part of future investment strategies.

How to Balance Your Portfolio: Digital and Physical Assets

The main principle of successful investing is diversification. No single asset, be it gold, silver, real estate or cryptocurrency, should occupy a dominant share in your portfolio. To achieve stability and growth, you need to properly allocate capital between digital and physical assets.

Portfolio Allocation: Find the Right Balance

A well-balanced investment portfolio includes a mix of physical and digital assets to protect against market shocks. Physical assets, e.g., gold and silver, are traditionally used as insurance against crises, while stocks and bonds provide long-term stability. At the same time, cryptocurrency (no matter its high volatility) can be a tool for increasing returns, especially if you choose the right investment strategy. In the table below you can see one of the asset allocation options based on a conservative risk management strategy:

Gold and silver are traditionally considered a “safe haven” for investors, as their value is maintained even during economic turmoil. Rare coins, unlike bullion, contain both precious metal value, as well as collectible value, which  make them a promising investment tool. At the same time, stocks and bonds are the basis for long-term financial growth, while cryptocurrency provides an opportunity to significantly increase capital with a competent attitude.

How much crypto is too much? If you are new to crypto, start with a small allocation (5-10%) before involving more capital. Unlike gold or silver (which have existed for centuries) crypto markets are still evolving, making them inherently riskier.

The one more question that you can have here is the biggest concern for traditional investors is authenticity verification. With gold or rare coins, tools like Coin ID Scanner help assess market value and authenticity and in the digital world, blockchain technology serves the same purpose.

• Blockchain ledgers are public, immutable, and decentralized, which means that transactions cannot be changed.

• Smart contracts ensure ownership security and prevent fraud in NFT and crypto transactions.

• Tokenized real-world assets (gold-backed cryptocurrencies) bridge the gap between tangible and digital investments.

Cryptocurrencies Backed by Real Assets: Are They Worth Investing In?

For traditional investors who prefer tangible assets such as gold, silver and rare coins, the idea of investing in something purely digital may seem unsettling. If you are used to holding physical wealth in your hands, the concept of digital money backed by nothing but trust and blockchain technology may seem too abstract.

However, there is a middle ground - cryptocurrencies backed by real assets. These digital tokens are tied to gold, real estate, and even rare collectibles, offering the security of physical assets with the flexibility and growth potential of blockchain technology. But are they really a safer bet?

A Few Words about Asset-Backed Cryptocurrencies

Unlike Bitcoin or Ethereum, the value of which is driven by network proliferation and scarcity, asset-backed cryptocurrencies are tied to real, tangible assets such as:

• Gold-backed cryptocurrencies (Paxos Gold, Tether Gold)

• Tokenized real estate (RealT, SolidBlock)

• Collectible-backed tokens (art, vintage cars, and rare coins)

Each of these digital assets represents ownership or value of a real-world item, which theoretically makes them less volatile than traditional cryptocurrencies. By the way, the concept of backing money with physical assets isn’t new. For decades, many national currencies were backed by gold reserves, ensuring their stability. Today, blockchain technology brings back this idea in a new form.

Examples of Gold-Backed Cryptocurrencies

Gold has been a trusted store of value for thousands of years, so it’s no surprise that crypto innovators have found ways to merge gold with blockchain technology.

Here are two leading gold-backed cryptocurrencies:

These cryptocurrencies allow investors to own and trade gold digitally, without the hassle of storing and securing physical gold bars. So, these gold-backed cryptocurrencies can be a great investment against inflation and be especially appreciated by people who value physical assets but want the opportunity to invest in blockchain.

Risks of Asset-Backed Cryptocurrencies

Although cryptocurrencies backed by real assets are considered more stable, they still carry certain risks. One of the main questions is who controls the physical assets that underlie the token and how transparent their storage is. Regulatory risks should also be considered: laws on digital assets are constantly changing, and restrictions or bans may appear in the future. In addition, the liquidity of such tokens is lower than that of traditional cryptocurrencies - it is more difficult to sell a digital asset tied to real estate or collectibles than it is to exchange bitcoins. That is why it is important to carefully study the issuing company, its legal framework, transparency of reserves and audit results before investing.

A Look into the Future of Investing

The investment world is changing now, so the line between digital and physical assets is less and less visible. And if you are used to the stability of gold, silver and rare coins, cryptocurrencies backed by real assets will seem to you an interesting alternative. So, choose wisely and remember that success lies both in choosing the direction and in the ability to combine physical assets with new digital opportunities.