Right after the markets crashed after the COVID19 virus was declared a pandemic, Bitcoin entered a price rally and this bull run is still going strong today. After being discarded for such a long time for being a volatile or risky investment, Bitcoin has shown that people value innovation.
If you are an investor that would like to know whether you should buy Bitcoin or gold, you’ve come to the right place. In this post, we will compare both assets, their pros, cons, and determine which one should have a place in your portfolio.
But before we begin, let’s go through some Bitcoin basics for those that are still unfamiliar with the concept.
What is Bitcoin
Bitcoin is a decentralized digital payment system that allows global peer-to-peer monetary transactions. Unlike gold, which has been used by humans since the dawn of time, it has been around only since 2009.
However, it has gained massive popularity throughout the year and many see it as a potential replacement of traditional payment systems.
When going through Bitcoin’s whitepaper, we can easily see that has been created to mimic some of gold’s unique properties:
- Bitcoin has a limited supply – only 21 million bitcoins will ever be created (or mined). This creates an element of scarcity for digital currency.
- Bitcoin is decentralized – this means that it’s independent of a central governing body and the creation of new bitcoins relies on a mathematical process called “mining” which cannot be controlled by anyone.
- Bitcoin is increasingly difficult to mine – the mining algorithm dynamically increases its difficulty as more miners join the network. Furthermore, the rewards of new coins obtained per block are halved every 4 years.
- Bitcoin provides true ownership – the person that holds the bitcoin addresses is their only proprietor. There are no third parties needed to handle, use, store, or spend them.
- Bitcoin is impossible to counterfeit – bitcoins do not exist in any physical shape or form. They are only records of transactions on the blockchain, and cannot be duplicated thanks to the distributed ledger of the network.
And while bitcoin imitates gold in all the aforementioned characteristics, the original cryptocurrency improves on a number of elements.
Advantages of Bitcoin vs Gold
Bitcoin is divisible – just like gold that can be cut down to ounces or even dust, Bitcoin can be divided into smaller parts, known as Satoshis. And while the process of dividing gold is tedious and can only be done by professionals, dividing a bitcoin into sats requires only a couple of taps on your smartphone.
This allows for bitcoin to be much more fungible and usable than gold, allowing smaller amounts to be easily exchangeable for cash.
Bitcoin can be used as currency – unless we are facing extreme conditions such as war or economic collapse, gold isn’t considered a valid tender of exchange. Bitcoin, on the other hand, can be used to purchase goods and services online or offline.
Bitcoin is portable – gold is heavy and large amounts are difficult to transport, let alone carry around. Furthermore, sending bullion overseas is very risky and expensive, while Bitcoin transactions are fast and cheap.
That being said, Bitcoin still has a couple of shortcomings when compared to gold.
Advantages of Gold vs Bitcoin
Gold is one of the rarest precious metals on earth and has a high cultural significance in history. It has been used for thousands of years as a tender of exchange, and it was used as a backing standard for paper money until very recently.
Furthermore, the precious metal has kept a few advantages over Bitcoin, such as:
Gold has usability outside in addition to the store of value – gold is a highly durable and malleable material that doesn’t corrode or alter through time. Lost gold coins recovered from the bottom of the sea come out pristine hundreds of years later.
This is why gold is still the most popular precious metal for creating jewelry and coins. Additionally, thanks to its conductive properties, gold is massively used in the manufacturing of high-end electronics.
Gold is less volatile – Bitcoin’s price is known to be unpredictable and to fluctuate sharply in short periods of time. In comparison, gold is a much “safer” asset, with no sharp increases or decreases in price.
So which one is better Bitcoin or Gold?
When comparing both assets’ performance in the last decade, the clear winner is Bitcoin. It’s an emerging asset that is slowly proving its value to investors and is still heavily undervalued.
The aforementioned issues of value and volatility should be overcome through mass adoption, technology updates, and a longer presence in the markets.
That being said, the wisest investment would to not put your eggs in one basket and diversify your portfolio by investing equally in both Bitcoin and gold.