Sure, the bulk of your net worth should typically be parked in real estate, index funds, stocks and bonds. However, Bitcoin and gold are great investment options too.
Since both assets have a limited supply, neither slowly lose value over time due to inflation like the dollar. So, this makes them ideal for use as a store of value.
Bitcoin is the new kid in town, whereas gold has been trusted as a store of value for thousands of years. While Bitcoin has recently gained popularity due to its exponential rise in price, gold has been the go-to option for saving your money over the long term for centuries.
Looking beyond current values of Bitcoin and gold, let us compare these two assets with respect to long-term investment (or as Bitcoin aficionados call it: HODLing).
Perks of Holding Bitcoin Over Gold:
Bitcoin is a cryptocurrency that has become widely popular due to its good usability and exponential increase in value. The rise in value can be attributed to the limited supply and ever-increasing demand which drives the price of each Bitcoin higher. Let’s look at how Bitcoin trumps gold as a long-term investment.
1- Its exponential rise in value: Any investor seeking long-term investments wants assets that have a high rate of return over time. Other than using it just to preserve wealth, you also need growth potential to counteract inflation and to make it worth the risk. While both gold and Bitcoin have seen a tremendous rise in value over the years, no other asset has been as rewarding as Bitcoin so far.
From being available at just 30 cents in 2010 to reaching an all-time high of nearly $20,000 in 2017, Bitcoin has successfully awarded millions to its believers. Additionally, this digital asset took under a decade to experience such success.
Gold is the traditional long-term investment option amongst all of us as it is a precious metal with high liquidity and is limited in supply. This means that the value of gold is going to increase every time its demand outperforms the supply. It took gold several centuries to reach the value it currently sits at. However, this was easily defeated by Bitcoin in under a year. Thus, all these factors have made Bitcoin an attractive choice in recent times.
2- Widespread usage: Both Bitcoin and gold are great stores of value. This is because each has a limited supply and ever-increasing demand increases their value. While gold has high-liquidity (easy to buy and sell), it is not convenient to use it as a replacement for money. Gold coins were historically a common method of payment. But today it is impractical to buy an inexpensive item like a cup of coffee in exchange for gold. On the other hand, Bitcoin is highly divisible.
You can pay with even a fraction of a dollar by using Bitcoin. Due to such high divisibility, the usage of Bitcoin around the world has increased. More and more companies such as Starbucks and Microsoft accept Bitcoin as a payment mechanism. With this growing adoption coupled with increasing demand, the price of Bitcoin has skyrocketed.
Perks of Investing in Gold Over Bitcoin:
Now that we have seen the advantages Bitcoin has over gold, let us take a look at the strengths of gold. Though people started using gold as a store of value centuries ago, saving it is one of the few practices that hasn’t changed.
1- Volatility: This is one of the factors that scares people away from Bitcoin. So far, the value of Bitcoin has increased exponentially over time. However, Bitcoin has also experienced crashes of over 80 percent along the way. It’s always recovered but not everyone can stomach the price action.
As Bitcoin is young and not regulated by any central government, the price swings are dramatic. Widespread investor speculation adds immensely to its volatility. Any news on Bitcoin can result in a huge price shift very quickly.
This is not the case with gold, because it is a regulated asset. This means that there is much less volatility, which will definitely increase the confidence of prudent investors. Due to this factor, the odds of a dramatic decrease in the value of gold is much lower. Additionally, because to its low supply and high demand, its value keeps on increasing. Thus, making it a good investment option for your retirement portfolio.
2- Trust: Gold is an asset that people often fall back on whenever they want to plan for their financial future. Even though this asset is fairly stable, it still provides its users with ample room for growth.
When investing a lot of money, it is very risky to invest in a newer asset like Bitcoin. More often than not, people like to stick to proven methods that have been used for centuries. Because gold is one such investment option, it holds the trust of the people.
As mentioned previously, the value of Bitcoin is largely based on speculation. Since its value is not backed by any physical asset, it has the potential to eventually drop to zero. Additionally, there is not much historical evidence that Bitcoin is safe to hold for a very long time.
3- Easy to use: Using cryptocurrencies such as Bitcoin can be complicated. If you make even one mistake while sending or providing your public address for receiving funds, you will end up losing it all. This is another factor that keeps people from adopting this technology.
Gold, on the other hand, is extremely user-friendly. It is as simple as buying and selling any other item that you want. Also, although carrying gold with you and trading it for goods is impractical, safely storing it to preserve your wealth is very practical. Keeping gold tucked away is a strategy used by governments and millions of people around the world.
Bitcoin and gold offer great investment opportunities. While Bitcoin is fairly new, gold has been used for this purpose for centuries. It offers more a stable place for your funds while plenty of room for growth.
Many Bitcoin enthusiasts say that the value of gold will come down once mining gold found in meteors becomes a reality. However, this milestone will take several decades to be accomplished, whereas quantum computers that pose a threat to blockchain security is right around the corner. This makes gold the best long-term investment option right now.
The Bitcoin is Gold Crew
Blockchain influencers, the media, and crypto enthusiasts love to compare Bitcoin with gold.
Gemini founders the Winklevoss twins in particular make this comparison often. Tyler has described Bitcoin as a better form of gold or “digital gold.”
[…] speaking in NY City on Feb 27, added his back up on the popular claim by many that the leading coin Bitcoin (BTC) is a digital form of gold. Both gold and bitcoin are scarce, he continued, fungible and divisible. But, he believes that bitcoin is better at being gold than gold is, since you can hold it in a single string of numbers making it much more portable.
Litecoin founder Charlie Lee is also known for drawing comparisons between gold and Bitcoin. He has also called his own cryptocurrency LTC “silver” and went so far to call XRP “diamonds.”
The famous developer commented that if he had to compare Bitcoin (BTC) with some commodity, in his opinion Bitcoin (BTC) is the closest thing to gold that exists in the crypto sphere.
Its massive adoption and the considerable increase in prices make it valuable digital storage for many people. This quality makes it perfect for accurate comparison with gold, being Bitcoin its digital equivalent:
“Bitcoin doesn’t need to face storage problems; it’s also very convenient to transfer. For me, he is better than gold in many places. If you are more optimistic, the market value of Bitcoin may be more than the 10 trillion market value of gold. More than 100 times the upside.” -- Charlie Lee
Brave New Digital World
It’s true that we’ve entered an era in which cutting down on physical attachments in favor of the digital equivalent is seen as “better.”
Everyone’s music collection was once on vinyl records, tapes or CDs. Movies were on VHS, DVD, then Blu-ray before moving to pure digital form as well. And while some of us still prefer physical books, affordable tablets and the Kindle have ushered in the digital era for our reading material.
Our banks balances have long been displayed on computer monitors. So, the desire to digitize our holdings in precious metals seems like the next logical step.
A New Asset Class
Let’s get back to the big question. Is it fair to compare Bitcoin to gold?
Many of these comparisons are attempts by Bitcoin boosters to describe a totally new asset class in terms they feel the public can understand.
Bitcoin really could be compared with any commodity. They choose gold because it has historically commanded a high price and it is ingrained in the public consciousness as a symbol of wealth.
The truth is more complex.
Bitcoin creator Satoshi Nakamoto intended it to be a currency. It behaves like a (volatile) commodity or investment, and is bought, sold and held on to like a stock.
Bitcoin and cryptocurrency is a new asset class that has nothing to do with gold. And since gold has held its value relative to the currency since of dawn of civilization, Bitcoin will not replace gold either.
The Bitcoin is NOT Gold Crew
Sean Williams at The Motley Fool slammed the comparison in his article titled ‘For the Last Time, Bitcoin Isn't the New Gold.’
The world's largest cryptocurrency by market cap has also drawn regular comparisons to gold, which is viewed as the go-to investment anytime fear, volatility, and/or inflation rear their heads. This comparison takes shape given the relative scarcity of each asset. In other words, there's a 21-million-coin limit on the number of bitcoin that can be mined, just as there's a limit on the amount of gold that can be mined from our planet. Therefore, the assumption has been made that bitcoin can act as a store of value much in the same way gold has for investors.
However, I'm here to tell you, again, and for the last time, that you shouldn't believe everything you hear about bitcoin. It isn't, and will never be, the "new gold."
Thijs Maas at Hacker Noon thoughtfully addressed the concept of Bitcoin as the new gold as well.
A lot of people believe that Bitcoin will serve as an effective hedge for economic uncertainty. Assertions like “Bitcoin is the new gold” have at some point appeared on the front-page of pretty much every financial outlet. And there is some truth in this statement. Bitcoin is definitely a great way to escape hyperinflation. It is also true that there is a relatively small correlation between Bitcoin’s price and the prices of mainstream asset categories. However, there is an important difference between gold and Bitcoin: Gold has intrinsic value. Bitcoin does not. A bitcoin costs around 4000 dollar now because we believe it costs 4000 dollars. If one day everybody decides that Bitcoin is worthless, it would be.
While it makes sense to compare Bitcoin with gold to market it, and provide clickbait to the pad the pockets of media outlets, we don’t need to choose one and throw out the other.
Bitcoin and gold are both investments worth considering. Bitcoin is convenient, fairly new and technologically exciting. Gold is still extremely small and lightweight in comparison to its value, and historically it’s the safer bet.
One Bitcoin could someday reach a value of $1 million as predicted by John McAfee, or it could fail and drop to zero. It’s highly risky, but the potential rewards are great.
Gold is just the opposite. It’s a safety net. Even if the entire financial system collapses gold will have value.
Photo: Steven Millstein