Comparing Bitcoin the Cryptocurrency to Gold the Store of Value as an Investment
Can Bitcoin Surpass Gold In The Digital Age?
When investors doubt the security of major financial systems or want to simply diversify their portfolios, they turn to alternative investments like gold. However, last winter Bitcoin stole the spotlight, reaching a record high of $19,783.06 on December 17, 2017.
Even before the rally, many individuals tend to believe that Bitcoin can become the gold of the Cryptocurrency age. This is possible since Bitcoin has shown some quality features that are reminiscent of gold. The main difference between Bitcoin and gold as a currency is that Bitcoin lacks a physical form which is not the case with gold. Also, gold has been there for decades while Bitcoin is a relatively new cryptocurrency formed only a few years ago. However, despite these few differences, they have more in common than you might be aware of.
However, there are numerous similarities between these assets.
What determines the value of major currencies in the market today is demand and supply. In the cases of Bitcoin and gold, both are scarce and have a limited cap production mainly due to increased demand. The value of Bitcoin has increased dramatically over the past few years, and that explains its reduced supply. In the future, we expect to see more scarcity in the market if the value of Bitcoin stands.
The value of gold is mostly associated with the highly limited quantity in the market approximately 171,000 tons, on the other hand, there are a total of 21 million Bitcoins that can be mined.
Over the years, gold has preserved its value; it averages annually at a rate of approximately $1,000-$1,200 per ounce. Initially, the value of Bitcoin was quite low; it was only being traded for a few dollars. Over the last course of 2017 however, Bitcoin has experienced many ups and downs.
Currently, gold is valued at around $1200 while Bitcoin is valued at about $6400. The biggest uncertainty surrounding Bitcoin is its stability; as a currency, its value has been highly volatile on the market. As for gold, over almost two decades, its value has steadied encouraging regular investors and governments to invest in it.
In this case, Bitcoin has a number of advantages over gold. This is mainly because of the anonymous feature of the Blockchain technology. In some cases, however, this could encourage illegal activities. The fact that Bitcoin uses Blockchain technology makes it better in preventing fraudulent activities.
Transferring gold physically can be quite awkward and slow as compared to Bitcoin which is transferred online within a few seconds. In addition, the fees charged when exchanging Bitcoin are minuscule as compared to gold. This makes Bitcoin far way more attractive as a mode of exchange in remittance markets.
Both Assets Have To Mined
Even though both the assets have to be mined, the process of mining them is poles apart. Gold is mined physically from the earth while Bitcoin mining involves the use of powerful computer encryptions. This fact means that both Bitcoin and gold are safe forms of currencies since they can’t be printed recklessly by central banks or any other entity.
Bitcoin can be used as a store of value in countries with uncontrolled and volatile currencies. For instance, in Venezuela, Bitcoin has been widely accepted by businesses for smaller transactions including buying food and movie tickets. This is a contradiction to the country’s increased inflation: around 2616%.
Gold seems to have retained its value for centuries. Gold coins that were used hundreds of years ago are still valuable today. Maybe it is due to the long history of gold, but it does not look like its value will disappear any time soon.
Fiat currencies are at the mercy of the economy, big banks, and governments. No matter how much of a fiat currency you own if one of these three controls goes belly up, your worth does too. By owning gold or bitcoin, you are outside the reach of these controls, which makes them both so much more valuable than their worth lets on.
The security, speed, transparency, and efficiency of Bitcoin systems are assuring. Even in a massive global economic downturn, Bitcoin, like Gold is anticipated to flourish.