Since the dramatic increase in the value of bitcoin in recent years, chief executives and analysts have started to consider the “Gold Vs Bitcoin” debate seriously. Therefore, this article will delve into the facts that both options have to offer the investors to determine if one is a better investment prospect than the other.
Introduction
As of late August 2021, bitcoin, commonly known as “Digital Gold”, holds a market capitalization value of $921.7 Billion. Despite being completely virtual, this incredible value that bitcoin possesses is also the reason why the trading community calls it “21st Century Gold”. The emergence of bitcoin first took place in January of 2009 as a blockchain-based cryptocurrency. In less than a decade, there was an exponential rise in the value of bitcoin, and in a very short time, it became a source of interest to investors and large multinational enterprises like Tesla and others.
While on the other hand, gold has always been perceived to be a haven asset, or in other words, a safer asset to invest in, compared to cryptocurrency. Investors often view gold this way since the value of gold is likely to experience extreme depreciation, unlike other options. Therefore, to responsibly make the gold vs bitcoin comparison, it will be advisable to consider certain aspects.
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A Head-to-Head Comparison Between Gold Vs Bitcoin
Deciding between investing in gold vs bitcoin will require one to analyze the following aspects of both assets. These aspects include:
Transparency:
Unlike other forms of assets, gold is much more transparent. This is because of two main attributes. Firstly, gold has been around for centuries, 5,000 years to be precise, and has cemented its place as a commodity that has significant value as one will see. The other attribute is that it has a much better system for trading in that it is heavily regulated.
Therefore, aspects like weighing and tracking the movement of this asset are much more straightforward and transparent. In addition to this, the chances of the gold being fake is very low as there are several technologies one can use to validate its authenticity.
Bitcoin, on the other hand, may not have the same transparency as gold. This is because of the lack of security measures that are in place to ensure that it is safe to invest. There are instances where bitcoin has suddenly disappeared after a disruption on exchange portals after they were no longer online. In addition to this, aspects like tracking bitcoin also become a hassle, as it is not possible to do it efficiently.
In fact, in the words of former Bridgewater Associates CEO, Ray Dalio, gold possesses the ability to balance one’s portfolio as it is both “risk-reducing and return-enhancing” thanks to its transparency.
Rarity:
According to the creator of bitcoin, Satoshi Nakamoto, there is a limit to the number of bitcoin in circulation at present. That is, there are around 21 million available tokens. Therefore, a centralized institution like a bank or a government organization does not issue or distribute bitcoin. Bitcoin attains a further degree of a rarity as the bitcoin protocol states that bitcoin which is usually distributed as rewards to the individuals who verify transactions will be halved at regular intervals.
As per popular perceptions, gold is a precious metal. Not only is this metal difficult to obtain through mining, but it is also in high demand, be it for ornamental value or other reasons. In other words, gold is extremely rare because of the resources that go into physically mining it and the inability of institutions to manufacturing gold artificially. For this reason, both bitcoin and gold have the same or similar degree of rarity.
Baseline Value:
The value of both gold and bitcoin is significant even though bitcoin has been around for a shorter amount of time. In fact, in 2017, the value of bitcoin surpassed gold, meaning that the value of bitcoin is higher than that of one troy ounce of gold. As of the beginning of August 2021, the price of one bitcoin was approximately $39,000 US dollars.
This value is significantly lower than its estimated value of USD 63,000 back in mid-April. One ounce of gold, on the other hand, is currently at $1,800 after seeing a slight decrease to $1,776 in the same period as that of bitcoin. For this reason, when it comes to the gold vs bitcoin price aspect, bitcoin has an advantage over gold.
In addition to this, gold vs bitcoin price is also influenced by the fact that gold has more applications in comparison to that of bitcoin as it finds use in making jewelry and is an integral component of special instruments and devices. Therefore, gold has a more traditional sense of value. Whereas, an improvement in banking infrastructure will mean that bitcoin will be valuable in creating a more convenient way of transferring money across borders without the payment of a fee.
Liquidity:
The aspect of liquidity refers to the ease with which one can convert an asset into physical cash without the value of the asset suffering. When it comes to cryptocurrencies like bitcoin, the degree of liquidity is quite significant and is probably the most liquid virtual currency in recent times.
The gold market also possesses high liquidity as purchasing and selling this asset takes place at stable prices. Therefore, the gold vs bitcoin debate concerning liquidity will end in a tie as both are equally liquefiable after the exchange of fiat currencies.
Volatility:
When one considers the plausibility of investing in bitcoin, the aspect of volatility is a cause for concern. The cryptocurrency market tends to be an extremely volatile market that experiences constant dips and rises.
This volatility can be observed when one looks at the sudden rise and fall in its value from March of 2020 to the end of the same year. In March 2020, Bitcoin lost around 25%. However, by the end of the year, it would rise to a whopping 50%. This high volatility of bitcoin is in part because it is not distributed by a central bank while also being limited. Therefore, many investors do not consider bitcoin to be a haven asset.
Whereas, gold has a lower degree of volatility as its value does not undergo much change irrespective of the changing market conditions. Therefore, the high volatility of bitcoin will mean that it is a better option for the individuals who prefer short-term or medium-term trades in comparison to investors that are in it for the long haul.
Therefore, despite the pros and cons that come up in the gold vs bitcoin in 2020 conversation, most experts state that investing partially in both, gold and bitcoin is a better option than focusing specifically on one asset.
In the words of seve
ral expert investors, the idea here is to diversify the portfolio. Towards this aim, it will be advisable to invest to a certain extent in both assets as a way to reduce the risks that accompany trading in cryptocurrency.
Frequently Asked Questions:
- Does bitcoin gold have a future?
Given the fact that bitcoin gold developers are attempting to fix the problems of distribution, protection, and transparency, the future of bitcoin gold seems to be surprisingly positive. As of May 2021, bitcoin gold is present on 40+ exchanges and available in 11 national currencies. In addition to this, as per the plans present in the 2021 BTG Roadmap, developers are looking to shift from a board-based governance system to a more contemporary DAO-based model.
Bitcoin gold is a hard fork that came into existence in 2017. A hard fork, in trading, refers to an irreversible or permanent alteration that takes place in the blockchain. The creation of bitcoin gold took place as a way to control the process of bitcoin mining.
- Can bitcoin overtake gold?
According to a Bloomberg Intelligence report in March 2021, the value of bitcoin is set to hit the $100,000 price level shortly and therefore, become a digital reserve asset on a global stage. The market capitalization of bitcoin is around $856.4 billion as of August of 2021. Gold now has a current market capitalization of $11.04 trillion which can seem like a steep incline for bitcoin to climb. However, according to Anthony Pompliano of Pomp Investments, the market cap of bitcoin is on the road to surpassing the market cap of gold by the year 2030.
- Is bitcoin undervalued?
As per the findings of the most recent stock-to-flow deflection chart, the value of bitcoin is significantly undervalued in comparison to the last decade of its existence. The chart shows that there is a negative 36% deviation as of June 2021. This deviation is drastic as it is taking place against its 11-year uptrend line.
The graph also reflected that the bitcoin price is around $63,000 when it should be above $100,000. However, according to several investors, the increasing attention that bitcoin is receiving as of 2021 may result in a natural widespread demand for bitcoin. Therefore, drastically increasing the value it possesses at present.
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Disclaimer:
Crypto products are unregulated as of this date in India. They could be highly volatile. At Unocoin, we understand that there is a need to protect consumer interests as this form of trading and investment has risks that consumers may not be aware of. To ensure that consumers who deal in crypto products are not misled, they are advised to DYOR (Do Your Own Research).
