As prices soar to 40-year peaks, speculators are seeking ways to reduce the impact on their investments. For such cases, speculators frequently resort to metals, particularly gold, that have long-standing expertise in working like an inflation hedge.
On the contrary, Bitcoin has proven to be an enticing investment for speculators since 2009, when it was introduced by Satoshi Nakamoto. Since then, the value of Bitcoin has risen internationally, earning acceptance and support.
Furthermore, it has been out there for a long time and has exhibited certain tendencies. As a result, many investors have turned to the renowned Bitcoin as a wealth store.
Some argue that the advent of cryptocurrencies is putting the long-history-holding yellow metal in competition as the best alternative for guarding against fiat money. Is it true?
To know that, let’s compare these two popular alternatives and find out how both perform in terms of retaining their worth – and your money — for the long run.
An Introduction to Bitcoin
Bitcoin debuted in the decentralized system in 2009 when launched by Satoshi Nakomoto, ushering in a novel age of banking and trading. Since it is decentralized, it may be distributed and received by participants over a peer-to-peer system operating on the blockchain network.
The blockchain’s first block was created by Nakamoto, known as the Genesis Block. This block held the very first 50 Bitcoins generated. From that day on, Bitcoin was processed by additional initial users until 2010. Earlier, these cryptocurrencies were only appealing to a small group of aficionados.
Later, they realized that the Bitcoins they acquired for parts of a penny had increased to $0.09 per Bitcoin. Huge-scale liquidity pools and yield farming farms increased in value and popularity did the crypto exchanges.
In 2020, Covid–19 pandemic took place and caused a worldwide lockdown of all businesses. This disrupts economies throughout the world. It was when traders and investors observed that Bitcoin’s value was not plummeting with stock prices.
They began to invest cash into it. Investment firms kept exploring new methods to develop financial products and entities. This led to bitcoin’s value being skyrocket. By April 2021, it reached $61,000.
An Introduction to Gold
Gold as a commodity grabbed attention after 1970. It is when the United States declared its possession and trade lawfully. Gold is a preferred commodity among a broad spectrum of traders looking to expand their strategy beyond specific equities and commodities and decrease volatility.
Gold has continuously retained its worth versus other investment vehicles over its duration and has beaten equities and shares over the previous 45 years.
Bitcoin launchGold has traditionally performed effectively amid economic declines because it retains its worth; its market keeps reasonably stable, then likely to grow when speculators shift from equities to gold when a downturn is imminent.
As a result, it can be used as a hedge opposite to economic declines or slumps. During the Covid pandemic in 2020, few traders flocked to Bitcoin; many opted for more conventional approaches, like gold. Due to this, the value of gold has risen from $1,300 in 2019 to approximately $2,100 in 2020.
Throughout 2021, its value fell as markets gradually rebounded, but still, it remained more than pre-pandemic crisis prices in 2009— the blockchain systems heralded a neoliberal economy.
What is a Store of Value?
A store of value is simply an asset, resource, or money which can be preserved, recovered, and traded without losing its value in the near future. To qualify for this criterion, we can also say that the object bought must be worth more or the same over a term.
Following these criteria, it can be stated that fiat money is an inadequate store of value. Money is essential as an everyday trade vehicle but doesn’t retain its worth over time.
We’ll come across two terms when talking about the economy. One is inflation, and the other is hyperinflation. Inflation is a common strategy employed by authorities worldwide to manage the quantity of money.
Each year government lowers the value of their currencies to get the investors to invest more in their currency with the expectation that this would boost economic development by generating more employment. Hyperinflation, on the contrary, is when money depreciates quickly, such as 50% each month.
Approximately 50 bouts of hyperinflation are documented in the global monetary system. It is distinguished by a significant rise in the price of products and commodities and a proportional decrease in buying ability. Hyperinflation is too prevalent and less likely to be seen in developed countries.
Investors put up their money in property investments, bonds, and equities expected to increase in price or hold their long-term value because the value of money is not constant, and it can lose its worth over time.
Therefore, the best option to stay ahead is to invest in an item that retains its worth. Despite being preferred over cash, these asset classes undergo cycles of growth and decline.
To further complicate things, their price fluctuations are interrelated, which means that economic circumstances affecting are more certain to impact the others. As a result, choosing an asset that is resistant to fluctuation is vital.
In periods of market turmoil, speculators generally turn to investments like Gold and Bitcoin, which do not fluctuate in lockstep when other markets are fluctuating. In reality, its value typically rises under difficult market situations as speculators transfer large sums of money. Investors see Bitcoin and Gold as “sanctuaries” due to their reliability.
This is where enters the popular debate of the time, bitcoin vs. gold. Gold has been out there for the longest time serving the investors’ store of value. It has outlasted several empires and governments some of which don’t even exist now.
Even if traders do not earn significant profits from their assets, they are certain that the integrity of their assets will be preserved.
Bitcoin as a Store of Value
Bitcoin, much like most emerging and innovative technologies, is unpredictable. Still, when you look at the big picture, it has grown significantly over time, performing as one of the outperforming assets of the time. The dictators of Bitcoin point out the scarcity of assets and render them worthless.
Nonetheless, many valuable assets, including key repositories of wealth, are intentionally scarce and fiat money. Even though the printing of money is in the government’s hands, and they do it frequently, Bitcoin’s scarcity is fixed. The total quantity of Bitcoin is restricted to 21 million. No additional Bitcoins will ever be created.
Other new coming technologies have certain weaknesses and are far more prone to getting attacked. Bitcoin is by far the safest asset working on a decentralized network and has been doing wonders since its inception in 2009 and has operated continuously and without interruption.
On the other hand, its liquidity is increasing at a rapid pace each year. More and more firms are accepting Bitcoin as a legitimate payment option, indicating that Bitcoin is becoming more useful. It is now utilized for overseas remittances and has lately been recognized as legal money by various countries. It is simpler to use than gold, albeit not as simple as conventional cash.
Furthermore, Bitcoin works on a blockchain decentralized network, which means it runs independently of monetary authorities or government depending on a worldwide network of servers and processors to complete a transaction. This enables individuals to hold assets irrespective of other entities, be they banks or any other organization, and avoids the hazards inherent in third-party storage.
At the same time, traditional property repositories demand significant protection and are hazardous or expensive to transfer; Bitcoin – of whatever worth may be kept and retrieved with nothing, just a password.
Gold as a Store of Value
Since humankind recognized the constraints of the bartering concept, cash has been utilized as a means of trade. Bones, metals, animals, etc., all have been employed as currency. Out of various means, only gold retained its worth and attraction over centuries. The first mentions of gold bars trace their origins to 500 B.C.
Humans have treasured it since then due to its characteristics and gorgeous beauty. It is treated as a way of conserving their riches for succeeding generations. Gold is a flexible metal that doesn’t oxidize and can be melted into any shape, such as coins.
The phrase “gold standard” applies to a financial system where the price of paper currency is supported by gold held in the state’s ownership. Although this method is helpful in combating deflation and inflation, it restricts countries’ capacity to create their own money independently. This has been a problem for countries trying to support wars.
Gold has always been highly regarded as a store of value. The reason is that gold has always held its worth as a protection against turbulent times. Endurance, exclusivity, mobility, exchange rate — and emotional connection, because sparkling goods are more alluring — all contribute to its immense worth.
Gold also has some industrial uses. It has been used for making jewelry for a long time. Recently, it has been used in making electrical equipment. Since gold is found underground and has to be mined and refined, the availability is limited and consistent. Due to this, gold’s connection with other types of assets, such as stocks, is also limited.
Investors who have a low threshold of the market’s volatility have solace in gold. One of the benefits of investing in gold is that it retains its value in market downturns and has proven itself useful as a hedge. These reasons add to gold’s long-standing status as a relatively reliable asset, or we can say a “safe heaven” for investors.
Bitcoin vs Gold: Key Differences
Scarcity is a term used to describe the limited supply of an asset. If the availability of an asset is simple and abundant, it is more likely to increase in its worth, but due to increased availability, its price falls, making it a poor store of value.
Whereas, when the availability of an asset is limited, its demand causes a rise in its value, hence boosting its economy and also maintaining it.
One of the fundamental qualities that Gold posses is its scarcity, providing it an advantage over other metals and commodities. Gold is rare and costly, and it is time-consuming to extract and refine it. Hence, it is difficult to meet the market’s demand. Since gold is rarer than other metals, it is dominating the store of wealth throughout history.
So far, we have learned about the scarcity of gold. What about Bitcoin? Gold is a rare metal not easily available, but Bitcoin is completely unavailable. Only 21,000,000 Bitcoins were ever made, and no other Bitcoins will be made until 2140.
So if we compare Gold and Bitcoin, Gold is difficult to extract, but the ground still contains it that can be extracted. But in the case of Bitcoin, its quantity is fixed. Thus it has a greater store value.
A term that describes the interchangeability and uniformity of an asset is fungibility which is also an attribute of the store of value. Since fungibility indicates that all comparable portions of the commodity have similar worth and may be swapped between varied marketplaces, it enables interchange.
Gold is typically fungible – a kilogram of pure gold is worth the same worldwide. However, gold is not always fungible due to impurities that might be present sometimes, making it less valuable than pure gold. Even it’s not easy to evaluate the purity of gold, and there is no standard measuring unit used throughout the world.
On the contrary, one Bitcoin is exactly identical to every other Bitcoin and can’t be pirated. So in our gold vs. Bitcoin discussion, we can say that Bitcoin wins the race by being more fungible than gold.
Gold has traditionally been utilized in a variety of uses, including coinage, luxurious products, and professional fields such as dentistry, electronics, and other fields. Gold’s capacity to preserve price while other asset prices decrease is due to this multi-functional usefulness.
If we talk about Bitcoin, its usage is confined to being a source of investment. Nevertheless, with the introduction of decentralized finance, which uses cryptocurrencies for transactions, Bitcoin can now be used for lending and borrowing.
So we can say that it has the ability to be engaged in many applications like gold in its own way. But for now, gold leads in this sector of our discussion.
A good store of value should be simple to divide into tiny chunks allowing precise value transfer. This is when gold begins to collapse. Since gold is a heavy metal, a tiny quantity signifies a tremendous sum of money.
Even with little gold pieces, this renders transferring tiny amounts of value difficult. This was the reason fiat currency was created: it allowed gold to be divided into smaller and interchangeable pieces. However, because fiat money no longer symbolizes gold, the issue of divisibility persists. Furthermore, dividing gold necessitates backbreaking work with several steps.
Bitcoin, on the contrary, does not have these issues. Bitcoin may be split indefinitely. As a result, no matter how expensive Bitcoin gets, it will still be feasible to spend it to purchase a glass of your favorite beverage. Bitcoin obviously stands victorious in terms of divisibility when compared to gold.
Owners of gold have various alternatives for safeguarding their gold, each with its own set of dangers and advantages in regard to safety. They can keep their gold in a vault or bank or at home beneath their bed.
Gold enthusiasts have a crucial security net. Bitcoin, on the other hand, is the safest among other cryptocurrencies but also comes with some flaws.
Since the crypto ecosystem is full of fraudsters, one can easily lose money if not properly secured. One way is by storing assets in a cold wallet which doesn’t necessitates internet connectivity.
Another important factor in store f value is the convenience of an asset. Gold being a heavy metal is difficult to transport and costly when transported in a huge quantities making long-distance trading cumbersome.
Gold is rather difficult for overseas trade due to cross-border rules. Portability is not a concern in the case of Bitcoin. Regardless of its worth, Bitcoin may be saved in a flash drive or in digital wallets and accessible from any part of the globe with internet access.
Transfers are quick and easily affordable. You may securely transfer a large amount of Bitcoin within minutes. Hence, once again, Bitcoin wins the race for being more convenient and portable than gold.
Both Bitcoin and gold have an effective store of value against inflationary pressures. Gold has been out there for millennia and continues to be strong by maintaining its worth. On the contrary, Bitcoin is a newcomer in the market, and it’s evolving in many aspects.
It has better scarcity, fungibility, and portability. But which option is better for the investor actually depends on the investor risk threshold investment plan and available cash.