💰Should You Buy Bitcoin or Gold?
Dear Rich Lifer,
Bitcoin’s meteoric rise this month has prompted debate about whether the digital asset will one day replace gold as the currency of last resort.
JPMorgan Chase argues the rise of cryptocurrencies in mainstream finance is coming at the expense of bullion, while Goldman Sachs believes gold and Bitcoin can coexist.
“Gold’s recent underperformance versus real rates and the dollar has left some investors concerned that Bitcoin is replacing gold as the inflation hedge of choice,” said Goldman Sachs in a note. “While there’s been some substitution, we do not see Bitcoin’s rising popularity as an existential threat to gold’s status as the currency of last resort.”
Just a few years ago, this debate would have made 99% of investors fall off their chairs laughing.
Even the thought of comparing a faddish digital currency, to an asset with thousands of years of history, sounds absurd. But it’s this widespread doubt and fear that make Bitcoin intriguing to so many investors.
In recent months, Bitcoin’s correlation to gold has tightened – a sign that it’s a possible alternative, or complement, to investing in the precious metal.
As more big-name institutions like Fidelity, Paypal, Square and MicroStrategy get on board and start buying, holding and accepting Bitcoin, mainstream investors are starting to wake up.
What are the Differences and Similarities Between Bitcoin and Gold?
There have been many comparisons made between Bitcoin and gold, insofar as people now referring to Bitcoin as “digital gold.”
But what are the key differences between these two assets?
Here are five important things you should know about Bitcoin and gold before investing…
Gold’s system for trading, weighing and tracking is near perfect. Passing off fake gold or stealing it is no easy task. Bitcoin is also hard to corrupt, since it’s encrypted in a decentralized system with complicated algorithms.
However, where gold has the advantage over Bitcoin is that the yellow metal can’t be hacked. Because of Bitcoin’s digital nature, it’s infrastructure is vulnerable to cyber attacks.
The Mt. Gox disaster is one example of why cryptocurrency traders should be cautious. The popular exchange was hacked and lost about $460 million worth of user Bitcoins. Years later, legal ramifications of the Mt. Gox situation are still being resolved.
Gold and Bitcoin are both rare resources. Bitcoin’s creator Satoshi Nakamoto, ensured that only 21 million Bitcoin would be in circulation by the year 2140. While it’s still unknown when all the world’s gold will be mined from the earth, we know there is about 244,000 metric tons of gold that has been discovered to date. But unlike the blockchain which records every transaction of Bitcoin that’s happened, gold trading and circulation can be harder to estimate since many investors keep their gold stashes private.
Billions of people around the world lack access to banking infrastructure. Bitcoin solves this problem by creating a platform where these people can send money across the globe at almost no cost.
Bitcoin’s potential as a means of banking for those without access to traditional banks give it enormous baseline value. Gold also has tremendous value, proving useful in many applications like dentistry, jewelry, electronics and other luxury goods throughout history.
Liquidity is important for any tradable assets including cryptocurrencies. A higher liquidity in the market means fairer prices, more market stability, and faster transaction times. Both gold and bitcoin have very liquid markets where fiat money can be exchanged for them.
One major concern for investors interested in Bitcoin as a safe haven investment is its volatility. Because Bitcoin is an emerging investment, it’s susceptible to large price swings in a short period of time. For this reason, Bitcoin as an investment opportunity attracts some and repels others.
If you look at the price history of bitcoin in the last three years, its highest point ever recorded was around the beginning of 2018, at about $20,000 per coin. One year later, the price of one Bitcoin hovered around $4,000. It has since recovered and reached a new all-time high of $23,874 this month.
Besides overall volatility, Bitcoin has proven susceptible to market whims and news. When cryptocurrency prices skyrocketed around the end of 2017, news from digital currency experts triggered a flurry of buying and selling, shooting the price of Bitcoin up and then down quickly. This volatility is not seen in gold as much for reasons previously mentioned, which is why gold is a safer long-term asset.
So, Should You Buy Bitcoin or Gold?
You can’t really choose one over the other.
The differences between the two assets offer unique advantages.
If you decide to buy gold, choose bullion and make sure you have a place to safely store it.
If you buy Bitcoin, recognize that its price will likely be a rollercoaster ride but there is a lot of potential upside to getting in early.
To a richer life,
The Rich Life Roadmap Team