Should You Buy Bitcoin or Gold?

4 min read

Bitcoin vs Gold

Should You Buy Bitcoin or Gold?

In the past year, many analysts and other analysts in the world economy have predicted a recession. After years of the bull market, investors worried about this possibility may suddenly start looking for ways to shift their investments to more stable safe-havens.

The traditional move is to use gold to hedge against stock volatility. In the past, this has proven to be an effective method, but newer alternative methods are challenging traditional safe-havens. Bitcoin was launched in 2009, ushering in a new era of digital currency. As a leading cryptocurrency, Bitcoin has many currency attributes but has some unique features that can make it a valuable safe haven. However, in the final analysis, it is up to individual investors to decide whether Bitcoin is a suitable safe space when problems arise in the market.

Below, we will compare gold and Bitcoin as safe-haven options.

Get some gold

There are several factors that make gold a powerful safe-haven asset. It is valuable as a material for consumer goods such as jewelry and electronics, and it is rare. Regardless of the demand, the supply is still too low. Gold cannot be produced by a company issuing new stock or printing money by the Commonwealth Bank. It must be excavated and processed.

As a result, gold has little to do with assets such as currencies and stock indexes such as the Standard & Poor’s 500 Index. This precious metal was not pegged to the U.S. dollar until President Nixon broke the relationship between the U.S. dollar and gold as the foundation in 1971. Since then, those who do not want to fully enjoy the changes in the stock market have invested in gold. In the case of a correction in the stock market, this precious metal can help ease the decline, or even increase, with a decline of at least 10%.

Gold usually performs well during corrections because although it does not always arise, the asset remains static and other falls can be used as hedging. In addition, as more and more people abandon stocks and invest in gold, the price also rises.

Bitcoin exploded onto the screen

Bitcoin is a blockchain-based cryptocurrency that shares some attributes with gold. In fact, because of the weak relationship between Bitcoin and all other assets (especially stocks), many people in the past referred to it as “digital gold”. Market participants may remember that in 2017, the price of a bitcoin surpassed the price of gold in troy ounces for the first time. In January 2020, the price of bitcoin exceeded $8,700, but how much is it worth? More importantly, should those who rely on stock trading consider investing in cryptocurrencies?

Like gold, bitcoins are limited in number. Satoshi Nakamoto, the creator of the pseudonym Bitcoin, limited the total supply to 21 million tokens. Bitcoin is also like gold, it is not issued by the central bank or the federal government. As a decentralized cryptocurrency, Bitcoin is generated by the collective computing power of “miners”. Miners are individuals and groups of people. They are committed to verifying transactions that occur on the Bitcoin network. Coin’s efforts were rewarded.

In order to ensure that the market is not flooded, the Bitcoin agreement stipulates that the reward will be periodically reduced by half to ensure that the final Bitcoin will not be issued until around 2140.

Compare The Two

For hundreds of years, gold has dominated the field of safe-haven assets, while Bitcoin was launched ten years ago and has not been widely recognized until recently. Below, we will directly compare these two investment options:

1. Liquidity

Both gold and Bitcoin have very liquid markets, and they can be exchanged for fiat currencies.

2. Scarcity

Both gold and bitcoin are scarce resources. The halved bitcoin mining rewards can ensure that all 21 million bitcoins will be in circulation by 2140. Although we know that only 21 million bitcoins exist, it is not clear when all the gold in the world was mined from the earth. There are also speculations that gold can be mined from asteroids, and even some companies plan to do so in the future.

3. Transparent, safe and legal

The established gold system for trading, weighing and tracking is primitive. It is difficult to steal, provide fake gold, or destroy metal. Due to its encrypted, decentralized system and complex algorithms, Bitcoin is also difficult to tamper with, but the infrastructure to ensure its security is not yet in place. mountain. The Gox disaster is a good example of why Bitcoin traders should be wary. In this disturbing incident, the popular exchange went offline and users’ Bitcoin worth approximately $460 million was lost. Many years later, the legal consequences of the mountain. The Gox situation is still being resolved. 3 Legally speaking, this behavior will have consequences because it is difficult to trace Bitcoin at any level of efficiency.

4. Basic value

Historically, gold has been used in a variety of applications, from luxury goods such as jewelry to special applications in the fields of dentistry and electronics. In addition to introducing new attention to blockchain technology, Bitcoin itself also has great fundamental value. Billions of people around the world have no access to traditional financial means such as banking infrastructure and credit. With Bitcoin, these people can deliver value almost free of charge around the world. For those who cannot use traditional banks, the true potential of Bitcoin as a banking tool may not be fully exploited.

5. Volatility

One of the biggest concerns for investors seeking Bitcoin as a safe haven asset is its volatility. We only need to look at the history of Bitcoin prices in the past two years as evidence. At the highest point, around the beginning of 2018, the price of Bitcoin reached around $20,000 per coin. About a year later, the price of one bitcoin hovered around $4,000. Since then, it has recovered some of its losses, but it is far from the highest level in history.

Despite the overall turmoil, Bitcoin has historically proven itself to be affected by market and news demand. Especially as the cryptocurrency boom has swept through many cryptocurrencies and hit a record high around the end of 2017, news in the digital currency field may encourage investors to make quick decisions, causing the price of Bitcoin to rise or fall rapidly. For the reasons mentioned above, this kind of volatility is not inherent to gold, so it may be a safer asset.

In recent years, many alternative cryptocurrencies have been introduced, aiming to provide greater stability than Bitcoin. For example, the tether is one of the so-called “stable coins”. The link between the tether and the U.S. dollar is the same as that of gold before the 1970s. Investors looking for less volatility than Bitcoin may wish to actually find safe havens elsewhere in the digital currency space.