Tushar Bakshi
Bitcoin is often referred to as “digital gold” by crypto enthusiasts, but how does BTC compare to gold as a long-term investment?
Many financial professionals have recommended investing in gold to hedge against volatility and a likely decrease in the value of the US dollar as a result of the emergence of forty-year high inflation readings and the increasingly bleak outlook for the global economy.
Bitcoin (BTC) has been dubbed “digital gold” by crypto traders for years, but is it a better investment than gold? Let’s look at some of the common arguments used by investors to defend gold as an investment, and why Bitcoin might be a superior long-term alternative.
Retention of value
One of the most prominent justifications for purchasing both is that they have a track record of maintaining their value during periods of economic turmoil.
This is a well-known fact, and there’s no doubting that gold has historically provided some of the best asset protection, but it doesn’t always hold its worth. Gold merchants have also been subjected to protracted periods of price drops, as shown in the graph below.
For example, someone who bought gold in September 2011 would have to wait until July 2020 to get back in the black, and if they kept holding, they would be near even or underwater once more.
Bitcoin’s price has never taken more than three to four years to recoup and surpass its all-time high, suggesting that on a long-term basis, BTC could be a better store of value.
Read: Get a long term safe investment in Bitcoin and other crypto assets.
Is Bitcoin a better inflation hedge than other currencies?
Because gold’s price tended to rise in tandem with increases in the cost of living, it was once thought to be an excellent inflation hedge.
However, a closer examination of the gold-to-Bitcoin chart reveals that, although gold has climbed by 21.84 percent in the last two years, the price of Bitcoin has increased by 311 percent.
Holding an asset that can outpace growing inflation helps increase wealth rather than maintain it in a society where the overall cost of living is rising faster than most individuals can bear.
While the volatility and price drops in 2022 were painful, investors with a multi-year time horizon have seen substantially more upside in Bitcoin.
During times of geopolitical unrest, Bitcoin may resemble gold.
Gold, also known as the “crisis commodity,” is well-known for holding its value during times of geopolitical turmoil, with people known to invest in gold as global tensions mount.
Carrying costly things is a risky idea for persons living in conflict zones or other unstable locations, as they may be exposed to asset seizures and theft.
For people in this position, Bitcoin is a safer option because they can learn a seed word and travel without concern of losing their money. They can reassemble their wallet and have access to their wealth once they arrive at their destination.
The digital nature of Bitcoin, as well as the availability of many decentralised markets and peer-to-peer exchanges such as LocalBitcoins, makes Bitcoin more accessible.
The dollar continues to depreciate in value.
In recent months, the US dollar has been strong, but this is not always the case. Investors have been known to flock to gold and Bitcoin when the dollar’s value declines versus other currencies.
If other countries continue to move away from a U.S. dollar-centric approach in favour of a more multipolar one, there may be a considerable amount of dollar flight, but those monies will not be invested in weaker currencies.
While gold has been the go-to asset for millennia, it is no longer commonly utilised or acknowledged in our current digital culture, and most younger generations have never seen a gold coin.
Bitcoin is a more familiar alternative for these groups, as it can be integrated into people’s digitally-infused routines and does not require additional security or physical storage.
Bitcoin is in a state of scarcity and deflation.
Scarcity and supply limits for gold, as a result of years of diminishing output, are cited by many investors and financial professionals as reasons why gold is a smart investment.
A new mine can take five to ten years to achieve production, so quick increases in supply are improbable, and central banks halted their gold sales dramatically in 2008.
However, it is estimated that there is still over 50,000 metric tonnes of gold in the ground, which miners would gladly concentrate on mining if prices rose significantly.
Bitcoin, on the other hand, has a finite amount of 21 million BTC that will never be produced, and its issuance occurs at a predictable rate. The Bitcoin blockchain’s public nature allows the location of every Bitcoin to be known and verified.
There will never be a way to truly find and validate all of the gold stores on the earth, which means the true supply will never be known. As a result, Bitcoin easily wins the scarcity debate, and it is the most difficult form of money ever devised by humanity.
Source: Cointelegraph
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