Many financial analysts recommend that investors in gold be made to guard against volatility and to preserve the dollar’s value.
Bitcoin (BTC), which crypto traders refer to as “digital gold,” has been around for years. But is it a better investment than the gold? Let’s look at the traditional arguments that investors use to praise gold as an investment, and see why Bitcoin may be a better long-term choice.
The most common reason to invest in both Bitcoin and gold is because they are stable through economic uncertainty.
This is a well-known fact. While gold offers some of the most valuable wealth protection, it doesn’t always retain its value. As you can see, gold traders have been affected by long periods of price declines.
Price of gold. Source: TradingView
A person who purchased gold in September 2011 would have to wait until July 2020 in order to return to the green. If they held on, they would be back at near zero or even underwater.
It has taken Bitcoin only three to four years to recover and surpass its high point. This suggests that BTC could be a more valuable asset over the long-term.
Bitcoin could be an even better inflation hedge
Because its price tends to increase with inflation, gold has been historically considered a good hedge against inflation.
However, a closer inspection of the chart of gold and Bitcoin shows that, while gold has experienced a slight gain of 21.84% in the past two years; the price of Bitcoin has risen 311%.
Chart 1: Gold vs. Bitcoin/USDT Source: TradingView
A world in which the cost of living is increasing faster than anyone can handle means that having an asset that can keep up with inflation can actually increase wealth, rather than maintaining it.
Although volatility and price drops in 2022 were painful, Bitcoin still offers significant upside for investors who have a longer time horizon.
During geopolitical uncertainty, Bitcoin could mirror gold
Gold is often called the “crisis commodity” because it can hold its value in times of geopolitical uncertainty. People have been known to invest gold when there are rising tensions.
So, I would assume that gold will rise as a commodity if we go into another recession.
— Scott Hempstead (@scottytrip1) April 22, 2022
People living in unstable areas or conflict zones are likely to be exposed to theft and asset seizure.
Because they can easily remember a seed phrase, Bitcoin is a safer option. They can also travel with no fear of losing their money. They can reconstitute the wallet once they have reached their destination and gain access to their wealth.
There are more opportunities to buy Bitcoin due to the digital nature of Bitcoin.
The dollar continues to lose value
Although the U.S. dollar has been relatively strong in recent months it is not always that way. Investors have been known to flock towards gold and bitcoin during periods when the dollar’s value is lower than other currencies.
There could be significant flight out of the dollar if different countries move away from being U.S.-centric and instead adopt a multipolar approach. However, those funds won’t flow into weaker currencies.
Although gold has been the most popular asset for millennia now, it isn’t widely accepted or used in modern society. Most people younger than 25 have never seen a coin of gold in person.
These cohorts will find Bitcoin a more familiar option. It can be integrated into their digitally-infused lives and doesn’t need extra storage or security.
Related: Argentines switch to Bitcoin amid inflation fears: Report
Bitcoin is deflationary and scare-mongering
Many investors and financial professionals point out that gold is an excellent investment because of its scarcity and limited supply after years of declining production.
A new mine can take between five and ten years to become operational. This means that rapid increases in supply are not possible. In 2008, central banks also significantly reduced their gold selling rate.
However, miners would be happy to extract more gold if the price rises.
The promised land of “true scarcity” will not be reached. The price of gold will continue to rise, so it will be mined more, which in turn increases supply. This then leads to a lower price. #bitcoin #gold #goldprice
— DeepSee-er, @ErDeepsee March 7, 2022
Bitcoin, on the other hand, has a 21 million BTC fixed supply that can be produced at any time and its issuance is occurring at a known pace. Because the Bitcoin blockchain is public, it allows the location of each Bitcoin to be verified and known.
It is impossible to locate all the gold stores on the planet and verify their authenticity, so its true supply cannot be determined. Bitcoin is therefore the most difficult form of money that humankind has ever created.
You would like to learn more about investing and trading in the crypto markets?
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