The economy has had speculation of a looming recession over the recent past. And however much the bull market has served investors, there comes a time for a shakeup in normalcy. Analysts have had investors looking for a safer option of investing in. Most people have immediately gone for gold as the alternative preferred stock to invest in. Gold has maintained its lead as the fall-back plan for most investors in the past. However, recently, gold stocks have gotten worthy competition.
The new competition comes in the form of Bitcoin. Bitcoin is a digital currency that got introduced in the investment market in 2009. It ranks as the number one digital currency in the world today. It mimics fiat currency but has exclusive attributes that make it worth investing in. This review analyzes gold vis a vis Bitcoin to see which one someone should invest in.
Why Consider Gold?
Gold gets highly sought after with its myriad of uses with a variety of products. Despite the precious metal’s scarcity, it gets used on electronics and jewelry. Because of its rarity, the supply can never satisfy the demand. Its rarity emits from the fact that it cannot get manufactured like the way money gets printed. An entire process involving digging it out of the mines and then processing it makes it this rare find.
Gold’s uniqueness makes it utterly different from fiat currencies and S&P 500 stocks. In time past, gold had gotten linked to the American money, but in 1971, President Nixon separated the United States currency from this link. From that time onwards, many found safety investing in gold stocks. The precious metal cushions investors wary of going through the full stretches of the stock market variations. It keeps constant between the corrections and declines accordingly, allowing people to enjoy stability unavailable in the fiat trade market.
Even though gold stocks rarely go up, they stay stable. This stability gives it an advantage over the rest of the assets. Other assets tend to lose their value in the market. Eventually, with an increased number of investors opting for the rare metal, the price inevitably goes up.
Bitcoin, Worthy Competition for Gold
Bitcoin has some similarities to gold, with some dubbing it “digital gold” because of this likeness. It is a cryptocurrency based on blockchain created by a pseudonym character called Satoshi Yakamoto. This digital currency has seen popularity in the recent past few years as a mystery surrounded it since its inception in 2009. It does not share similarities with other currencies yet has grown in leaps and bounds to have great value.
An excellent example of Bitcoin’s value came up in 2017 when one Bitcoin shot up past the price of one troy ounce of gold. By January 2020, the cryptocurrency had risen in value to $8700. Perhaps instead of giving up on investing in any stock, people should invest in bitcoin.
Limited supply is another similarity Bitcoin has to gold. The creator of the cryptocurrency created a maximum of 21 million tokens that can ever get mined. Just like gold, no federal government or central bank can supply the cryptocurrency. This attribute makes it a decentralized asset with no money trail.
Bitcoin miners can generate cryptocurrency by working together. As individuals collectively form a network, put in the effort, and engage in computing power, they receive rewards for verifying transactions.
A protocol has been put in place to level the market. It makes sure that the rewards are halved from time to time. This protocol ensures that the last Bitcoin will get mined in 2140.
Gold And Bitcoin Compared
Gold had stood the test of time from the beginning of civilization when people started mining it. While no one knows the amount of gold still available in the confines of the earth, it remains available. Bitcoin, on the other hand, has about a decade on the planet and has only gained popularity recently. A thorough comparison of the two assets proceeds below.
Legality and Safety
Gold has a set system of processing from the mining, refining, weighing, tracking, and selling. It becomes next to impossible to create counterfeit gold and get away with it because of this foolproof process.
Likewise, one cannot easily corrupt the bitcoin process as it uses a decentralized system, accompanied by complicated encryptions and algorithms. However, loopholes still exist to take advantage of it as it does not have a set structure.
A precautionary tale would be the Mt. Gox misfortune where a transaction disappeared from online traces. The disappearance eventually cost investors approximately $460 million in Bitcoin coins that remain untraceable to this date. The same decentralized system that makes this asset popular becomes its undoing as it remains untraceable even when lost through underhanded means.
Both gold and Bitcoin are rare assets. Bitcoin has a limited number of 21 million assets worldwide that complete their circulation in 2140. Its availability comes from the fact that it gets halved every few turns.
However, no one can tell when gold deposits will get depleted in the world. Even if they do get exhausted, researchers believe that asteroids have this precious metal in them. Some companies have started looking at how to mine gold from these celestial bodies, ensuring that gold remains in circulation for a long time to come.
The Baseline Value of Bitcoin and Gold
Gold has gotten used in many places, from jewelry to timepieces, crowns for dentistry to electronic parts, house accessories to cutlery. This precious metal has numerous uses and stands out wherever used.
In comparison, Bitcoin also has great baseline value as it has revolutionized the world through blockchain technology. Many people still cannot access traditional banking services. They also cannot access financial credit services.
This cryptocurrency can revolutionize how many people have access to the value they can send to any corner of the globe at a minimal and affordable fee. This currency’s financial capabilities have not yet gotten fully explored and utilized as it has a lot to offer the marginalized in financial services.
One can quickly liquidate both the precious metal and the cryptocurrency, allowing them to have standard fiat currency when the need arises. Such freedom ensures that no one gets stuck with valuable assets without using their full potential.
Investors wonder about bitcoin’s volatility. The reason for this concern stems from its price behavior within two years. When 2018 was starting, the cost of the cryptocurrency was around $20,000 for a coin. Within twelve months, the price of a bitcoin had dropped to $4,000. It recovered some of its losses, but it remains far from its highest one-time high selling price.
Bitcoin also gets affected by the changing market and the news. Digital currencies were well-known as 2017 was winding up with their prices going up. As the financial updates made their way around the circles involved with digital currencies, investors could quickly change their decisions. That made the prices of bitcoin quickly rise or drop.
On the other hand, gold has a stable background. Its value does not change through the shifts in seasons or market adjustments. It, therefore, looks like the more fitting of the two investments. Beyond this, several cryptocurrencies have begun to make their rounds in the investment arena with a more stable alternative for Bitcoin sought after. Such crypto goes by the name Tether. Ironically, it has gotten tethered to the dollar, just like the dollar had been decades ago. While it remains to justify itself, it looks like it can offer a more stable investment option compared to Bitcoin.