Bitcoin or Gold? Take your pick
The stalemate between Gold and Bitcoin is unavoidable. Putting aside short-term concerns about bitcoin aside, making a long-term comparison between bitcoin and gold based considering their prices is plausible. Gold has been used as the store of value for the longest time, but the emergence of bitcoin and its attributes makes the comparison of the two inevitable. On one side, bitcoin stands out as being a rather attractive asset with more functionality and versatility than gold. On the hand, gold stands out as having an undisputed record for value storage for thousands of years. Some bitcoin enthusiasts believe that bitcoin could outdo gold as a store of value given its attributes.
Spencer Bogart, an analyst at blockchain capital, stated that “If we think about the qualities that make gold a respected ‘money’ or store of value, bitcoin is actually superior in many regards.”
Notably, not everyone shares Bogart’s sentiment, but the fact that bitcoin threatens gold as a store of value is unquestionable.
Steady and sure store of value
Some gold and cryptoanalysts are of the opinion that one the qualities that make gold more attractive than bitcoin is its reliability and trust build over a long period of time. Basically, looking at the tenure of existence for both assets, it is not a big surprise that even consumers would prefer gold. Notably, bitcoin stands the risk of technological disruption and government crackdown. These two events could cause bitcoin to become less attractive. Moreover, gold has withstood government attempts to outlaws it, which further makes it more attractive to bitcoin. President Roosevelt criminalises the passion of gold in the united states yet nearly a century later, gold remains a preferred store of value.
According to Dave Kranzler, “For more than 5,000 years gold and silver have been tried-and-true money. They’ve lasted basically the duration of organised civilisation.”
Bitcoin is only beginning to experience the pressure from governments. Whether it will withstand and live through turbulent times can only be ascertained over time.
Inflation and deflation
While trying to impress on the attributes of gold that make it preferable to bitcoin, it is important to highlight bitcoin attributes that could change this perception. One of the key advantages of bitcoin over gold is the existence of a hard sap in supply. Economics has it that overproduction of an asset is highly likely to lute its value. Considering that gold has not defined fixed supply, bitcoin stands out in this regard. Many people are of the opinion that gold is not affected by inflation and deflation. However, this is not entirely true.
According to Chris Burniske lead on blockchain products in ARK investment impressed that, “A well-known characteristic about bitcoin is that it’s on a disinflationary supply schedule. While many people think of gold as being the same, gold is actually a sneakily inflationary asset,”
The fact that bitcoin is completely deflationary makes it a more attractive store of value and unit of account. Additionally, the functionality of bitcoin particularly for commercial purposes indicates that its importance in society will only grow further.
Are the two complementary or substitutes
While there are those engaging in debates on which between gold and bitcoin is the better store of value long-term, others bear a different perspective altogether. This perspective suggests that bitcoin and gold will exist as complementary assets as opposed to substitutes. In fact, while the two assets share some functionality, they have key differences that make them uniquely attractive. Essentially, the question of which of the two assets is better can only be determined by evaluating the risk profile of each of them. Moreover, the determination of which is preferable will vary from one investor to another. Bitcoin is largely volatile in comparison to gold but attracts high risk as well. On the other hand, gold is less volatile and has less risk in comparison to bitcoin. Having this in mind one could opt to have both in their portfolio for the purpose of diversification.
Some assets have boomed and busted in the past. Some of these include the Dutch tulips in the 16th century, dot-com and most recently the US housing market. Unlike these assets, gold has remained immune to the major economic crisis and technological disruptions. However, one of the major differences between bitcoin and these failed assets is the fact that it is decentralised. Coupling this with an increase in the number of bitcoin users, bitcoin could prove to be as resilient as gold. Considering these factors, the determination of which is better than the other will depend on the investor’s risk appetite and preference.