As soon as the world started suffering the first consequences of the severe COVID-19 pandemic, investors began exploring new safe haven values that cannot be destroyed during the major economic hurdles. That’s when they began to refer to Bitcoin as the new gold.
Even though previously the correlation line between the bullion and Bitcoin hardly ever had some similar tendencies, right now some say that Bitcoin even outperforms gold in terms of future stability. Both are scarce and can be held outside of traditional financial markets, therefore they cannot go down together with the fiat currencies’ inflation.
Let’s look at the differences and similarities between Bitcoin and gold more closely.
Due to the economic theory, money can be defined by a few crucial functions: one of which is that money has its inherent worth attached to them. In this regard, Bitcoin can be called currency. Meanwhile, gold isn’t used directly as a medium of exchange. At the same time, it has a decent store of value that’s why, traditionally, state currencies of many countries have been backed by gold.
If we look at the chart showing the average true range (ATR) for some crypto to fiat pair, let’s say, Bitcoin to pound, this pair would be a lot more volatile than the same pair of a currency compared to gold. So why do many investors call Bitcoin the safe haven “in case of emergency”, just like gold?
Let’s look at the features which make gold the store of value item and see if they are related to Bitcoin.
Gold is a real thing that cannot be destroyed (at least not that easily). Bitcoin, in turn, can be called invincible as well since once it’s mined, it writes into the immutable blockchain. Nevertheless, it’s technically just a piece of code, the existing Bitcoin is being saved into a distributed ledger so proponents say that it’s impossible to destroy a Bitcoin.
Every single bullion of gold is just the same as any other one, that’s why it can exist both as a store-of-value item and medium of exchange. The same is true about Bitcoin.
Once it’s melted, pure gold can then be divided into smaller pieces, therefore, forming bullions, ingots, and coins. Bitcoin also divides into smaller fractions – up to eight decimals after zero.
You can move gold from one place to another. Yet, it has its limits since it’s basically about pieces of rock. Bitcoin can also be transferred via digital transactions and here, presumably, the sky is the limit.
One of the main points that markets rely on is the scarcity of an asset. The supply of gold is limited since it takes a considerable amount of time and effort to obtain new gold. Gold can’t be just printed in a matter of days like fiat currencies can. This puts this asset at scarce.
Bitcoin has a limited supply of 21 million Bitcoins that can ever be mined. Its scarcity is also more reliable than gold since new technological advancements make it potentially viable to create gold in laboratory conditions or to mine it on other celestial bodies in space.
At the same time, experts point out that the abovementioned features are not unique to only gold and Bitcoin. Because also there are other precious metals and altcoins which have the same qualities. What sets Bitcoin and gold aside is the trust of the wider audiences in their shared value.
Moreover, some features are putting Bitcoin in even higher scarcity than gold. The absolutely predictable amount of Bitcoins that can ever exist creates a wide, devoted, multinational pool of supporters that are interested in maintaining the safety of its code.
And the more people believe and invest in Bitcoin, the harder it becomes to violate it. So aspects like increased security and independent worldwide expansion amplify the rareness of Bitcoin even further. Bitcoin’s security is also ensured by means of collective engagement rather than kings and conquest stories which are more commonly associated with gold.
There is no doubt that gold has been more stable in its prices than Bitcoin. Therefore, many analysts view volatility as one of the difference points between the two. According to statistics, Bitcoin has shown about 300% growth for the 2020 year alone. Such annual growth rate has never been observed with gold to fiat currency price rate.
Another point of difference might be about how these assets are stored. While gold is a hard physical asset and is typically stored in private collections or in safes, Bitcoin is different. Of course, physical nodes (servers) can be guarded by armed security forces and their location might be kept secret.
Although, the actual Bitcoins don’t exist as a physical entity. Technically speaking, they are easier to steal unless they are held in cold storage. Indeed, numerous cases prove that by 2021 nearly 1 million Bitcoins have been hacked and stolen from their legitimate owners.
Yet, this statement is a bit controversial because no one really knows how much gold has been stolen from the original owners and keeps being stolen every day. In a way, the physical asset is easier to steal from an individual than a digital asset. At the end of the day when you’re walking down the street, no one can ever tell by your looks whether you own Bitcoin and how much.
Here are some other points of difference to consider:
Gold has more demand sources
Gold has more demand sources like jewelry, technology, investment, central banks’ ownership. While the demand for the Bitcoin still remains not so obvious and mostly boils down to speculations on its price, buying and holding, and utilizing underlying blockchain technology for making altcoins or secure digital networks.
Gold has a much longer history
It has been appreciated for at least 7000 years. Bitcoin exists since 2009 and for the first few years until 2017, it wasn’t too expensive or demanded.
The increase in gold demand shows seasonal patterns
In particular, it increases during the celebration of religious holidays in India and China because this precious metal is associated with prosperity, divine soul, and good luck. Bitcoin shows no seasonal patterns.
Bitcoin price is hyper-sensitive to the news
Gold price moves slower and not so drastically and it correlates with the news much less.
The adoption of Bitcoin by major financial institutions like banks, pension funds, insurance companies, hedge funds may have a drastic impact on Bitcoin becoming the new gold, researchers say.
The first publicly traded Bitcoin ETF in North America, approved by the Canadian government, raised $421.8 million AUM (assets under management) and is predicted to reach $1 billion over the week. After such an explosive interest generated on the stock exchange, investors expect the SEC to be more positive to the prospects of the Bitcoin ETF.
Even though previously, the American government officials kept declining proposals for creating a crypto ETF in the USA, including offers from the Winklevoss brothers back in 2018.
The latest findings suggest that Bitcoin is a “speculative store of value”. The investors try to make it the established store of value by pouring significant amounts of funds into Bitcoin. As of 2021, unlike the 2017 market swings, the asset class infrastructure is already created.
It comprises large institutional investors with enhanced compliance procedures, risk control, and considerable balance sheets. This fact gives Bitcoin a solid foundation to become a security asset that will remain unshakable during real-world currency inflation, as predicted by financial connoisseurs.
Meanwhile, analysts expect the technology upon which the first cryptocurrency is built to undergo a major transformation. Bill Gates, for instance, has been expressing skepticism regarding Bitcoin.
He sees this digital asset as harmful for the ecology because of the excessive electric power that is required for mining its blocks. And supposedly, if society moves to more eco-friendly cryptocurrencies, Bitcoin might cease being the hope of many investors for the brighter future.
Yet if we look at more positive predictions, then with the further rise in the Bitcoin price against the fiat currencies, the total market cap of the crypto will enhance exponentially. Right now it has closely reached the threshold of $1.5 trillion.
Nevertheless, the total market capitalization of gold is evaluated at $11 trillion which is still far from what cryptocurrencies can offer. But as we mentioned above, the considerable influx of institutional investors specifically Bitcoin might show stability as a safe-haven asset in the long run because of the global dedication of the world’s community.
So, suggesting that the current market growth and inflation rates will maintain at the same level for years ahead, Bitcoin’s price is predicted to show bullish dynamics. It might reach at least $145,000 and up to $1,000,000 according to the most optimistic forecasts.
This event will lead to more and more businesses holding their assets in the digital crypto equivalent, which will indeed make Bitcoin a security asset with inherent stability that has been historically associated with gold.
About the Author!
Bob Flores, as a high quality financial analyst he has spent the past five years working with individuals and companies, such as CEX.IO, to help them in financial issues. He has bookkeeping experience and find himself as a freelance writer. He write about financial issues, new trends in the financial world like cryptocurrency and blockchain and everything that relates to the business world.