Considering the legendary run cryptocurrencies had in 2017, and despite the bearish market of 2018, there are many that consider Bitcoin, the most valuable and important crypto to date, to be a very good investment.
While that may be true, in order to assess just how good of an investment Bitcoin is in 2019, it makes sense to compare it with what may be regarded as the world’s most important and long-standing investment, the precious metal named gold.
In this article, we will be exploring the basic and unique features that make both gold and Bitcoin good investments, we will have a look at their similarities, and try to determine what actually makes one better than the other.
A few words about gold
It’s no surprise that gold has really stood up the test of time and is till this day considered the most appealing form of money on the planet. Gold has a rich history as being used as money even since the times of ancient Egypt and ancient Rome. In financial terms, for almost all people on this planet, gold if the ultimate hedge.
Gold’s success has to do a lot with its history, but also with its various unique properties. Gold is limited, divisible, almost indestructible, and close-to-impossible to counterfeit.
A few words about Bitcoin
Bitcoin, the world’s most important cryptocurrency has but a fraction of the history of gold. Born in part as a natural reaction to that market panic and global volatility of 2008, Bitcoin is a cryptocurrency that allows people to transact with each other, over the Internet, anywhere on Earth, in a safe and relatively anonymous way.
“A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution,” as described by its anonymous creator, Satoshi Nakamoto, in the original whitepaper in 2008. Bitcoin is limited, divisible, counterfeit-resistant, and it’s designed to be democratic.
Even though gold has some unique physical properties and Bitcoin is not exactly tangible, as it cannot be held in physical form, Bitcoin and gold have a fair share of similarities. For starters, they both serve the same purpose, they are both relatively safe assets, and their values are speculative.
Similar to gold, people are in a rush to get their hands on Bitcoin because it has constantly increased in value since its inception. Just like in the case of gold, the value of Bitcoin is not determined by external factors.
Bitcoin vs Gold
Despite their inherent similarities, there are a few important differences between the two. It’s these differences that will determine whether Bitcoin or gold is the best investment and why. Gold may be here for millennia, but in today’s digital economy, cryptocurrencies have a lot more value. Historically, gold played an important role in trade. Nowadays, gold has to be liquidated in order to be used in commerce.
The same cannot be said about Bitcoin which can be used to buy pretty much one can imagine nowadays (and without having to be liquidated). One thing is for sure, Bitcoin’s popularity and utility in modern society will only increase with time.
The crypto market may be renowned for its gruesome volatility, but Bitcoin has another advantage of gold when it comes to inflation. Since its supply is fixed and final, it eliminates the fear of inflationary pressures associated with overproduction.
Of course, at the end of the day, there’s no denying that Bitcoin is the more risky asset of the two. Bitcoin is susceptible to all sorts of regulations and developments. While Bitcoin will most probably always be used across international borders, it’s local value can drop if, for example, a government bans it.
Therefore, as much as it might seem that Bitcoin can compete with gold regarding stability and risk, but the truth of the matter is that gold is one of the assets that held its value as constant as possible during centuries.
So, what’s the better investment? While there is no definite, perfect answer, both Bitcoin and gold make strong cases. Hence, whatever you choose, either Bitcoin or gold, there’s a good chance you won’t go wrong.
While they are very similar and their purpose is somewhat the same, pinning them one against each other may prove to be not the smartest idea. Instead, you might consider allocating a portion of your funds into gold for a less risky investment, and the other part into Bitcoin for a riskier and potentially higher yielding return.