11.11.2020

Blog: Bitcoin vs Gold

Blog: Bitcoin vs Gold

People have been striving for gold for thousands of years. Gold has served as a basis for both kingdoms and currencies. It is not very long since the US dollar was pegged to gold, and the currencies of all other countries were pegged to the value of the dollar. Today, one of the main reasons to invest in gold is to secure your wealth in times of uncertainty. The first block of Bitcoin was created on January 3rd, 2009. This is also widely accepted as the birthday of Bitcoin. Bitcoin is the oldest and best-known decentralized virtual currency in the world. Bitcoin has grown in popularity over the years, and today many experts call it the digital gold. The purpose of this text is to compare gold and Bitcoin as an investment.

              
Gold as an investment

People have used gold as a medium of exchange for thousands of years. Gold is still definitely one of the most popular investments. Above all, gold can be considered as a defensive investment. People buy gold to hedge against a stock market downturn or currency risk, for example.

The price of gold is always determined by supply and demand. This means that the price of gold determines in the same way as the price of shares. In practice, this means that when the demand for gold increases, the price increases, and when the demand falls, the price falls. When talking about the price of gold, it’s impossible to ignore central banks. Central banks hold the world’s largest gold reserves, and they are also the world’s largest gold buyers. Central banks’ gold reserves limit the physical supply of gold and directly affect the gold price.

There is a limited amount of gold on Earth. The limitations of gold lead to scarcity, which is one of the best features of gold. In the case of gold, scarcity separates gold from currencies like the euro and dollar.

It is possible to invest in gold in multiple ways. The most popular ways to invest in gold are: buying physical gold, listed funds, derivatives, futures, and options. Different investment methods involve different risks and react to changes in the gold price in slightly different ways.

Due to its characteristics, gold is above all a store of value. Gold has also been considered as a so-called safe haven. Safe haven thinking means that gold is generally seen as a safeguard against currency depreciation and shares. Safe haven thinking is based on the following theory: When the value of shares decreases, gold retains its value, or it becomes even more valuable. Gold is an exciting option to hedge against an uncertain economic outlook. Many people don’t know that gold has also received a digital challenger, which will be discussed in more detail in the next paragraph.

Bitcoin as an investment

Bitcoin is the largest and oldest cryptocurrency in the world. Over the years, the popularity of Bitcoin has grown. Nowadays, bitcoin can be found in the portfolios of several investors. People buy bitcoin for several different reasons. It is possible to use Bitcoin both as a means of payment and as a store of value.

Like gold, the price of Bitcoin is based on supply and demand. This means that the price of bitcoin is determined in the same way as the price of gold. In practice, this means that when the demand for bitcoins increases, the price increases, and when the demand falls, the price drops. Bitcoins are not under the control of any single party, and unlike traditional currencies, it does not have its own central bank. One of the most important features of Bitcoin is that its maximum amount is predefined. No one knows how much gold is still to be found on Earth, while the maximum amount of bitcoins is unchanged.

Bitcoin is a very scarce digital commodity. There are currently about 18.5 million bitcoins globally, and the number of new bitcoins entering the market is halved roughly every four years (every 210,000 blocks). In the Bitcoin blockchain, a new block is mined about every 10 minutes, and the mining fee for it is currently 6,25 bitcoin. New bitcoins will enter the market until 2140, after which all 21 million bitcoins have been mined.

At the moment, the supply of bitcoin is even scarcer than the supply of gold. As a result of future Bitcoin halvings, the differences between bitcoin and gold scarcity will increase even further in the advantage of Bitcoin. The halving of bitcoin also prevents inflation very effectively and allows bitcoin to preserve value. Many experts have said that in addition to gold, Bitcoin is also a safe haven. However, this theory has not been tested yet in practice. This is because bitcoin has not experienced any economic crisis throughout its history. Proponents of Bitcoin and gold have been arguing for years about the ultimate safe haven during the financial crisis. We will certainly get an answer to this in the years to come.

There are many different ways to invest in Bitcoin, and several different Bitcoin-related investment products have entered the market in recent years. However, the most popular way to invest in Bitcoin is to buy bitcoins from cryptocurrency marketplaces. Start investing in Bitcoin today and sign up here.

Conclusion

Many experts say that Bitcoin is digital gold. After all, there are many similarities between bitcoin and gold. Both of them have scarcity, and no single entity can create gold or bitcoin from scratch. Central banks can create traditional currencies like euros and dollars as much as they ever want, but this is not possible in the case of Bitcoin and gold. Bitcoin differs from gold, especially because the maximum amount of bitcoins is well defined and well known. No one knows the maximum amount of gold. Also, Bitcoin can be considered more flexible than gold, and bitcoin can also be used for daily payments and quick and inexpensive intercontinental transfers.

The greatest strength of gold is its history. Gold is also often referred to as a so-called safe haven. Gold has proven to be a very stable commodity for thousands of years. It has withstood numerous economic crises and secured the assets of those who invested in it. Only time will tell if Bitcoin can do the same. At least many experts believe it.

The purpose of this text was to compare Bitcoin and gold. The result is that bitcoin and gold are very similar. Both of them have their strengths. There is certainly room for both traditional physical gold and the new digital gold, Bitcoin.

Mikko Soon Cryptocurrency specialist
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Last updated: 11.03.2022 13:25
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