With Bitcoin achieving parabolic price surge, its comparison has been drawn with gold, which is another lucrative investment. So, is bitcoin the new gold? This Buzzle article tries to answer this pertinent question.
Did You Know?
According to a December 2013 report in the telegraph.co.uk by Kyle Caldwell, in November 2013, a single unit of Bitcoin became more valuable than the price of a gold ounce by hitting a high of $1,242.
Often referred to as a safe haven asset that will provide a hedge against stock market downturns and inflation, gold has been one of the most popular choices of investors all around the globe. However, proponents of the peer-to-peer innovative open source cryptocurrency have touted Bitcoin to be the next gold 2.0. It is the speculative nature of gold that makes it an attractive investment. However, the speculative fervor has now shifted to bitcoins, making them the most coveted investment option. Bitcoin has been gaining a certain level of acceptance as a mode of payment.
As the value of paper currencies decline, bitcoins continue to take the importance of gold. Hence, there are many investors who predict that Bitcoin may be the next gold standard. However, if monetary debasement is implemented by developed countries, gold will emerge as a front-runner. There are certain similarities that are shared by bitcoins and gold; both can be used as alternate currencies and are great options for investment. However, there are stark differences that separate the two. Here are a few points that will give you details of the differences between the two.
Bitcoin Vs. Gold Investment
|Bitcoin Investment||Gold Investment|
|It is a new concept, and investors are still experimenting with it.||It has withstood the test of thousand years.|
|They are virtual assets, and you cannot own them physically.||They are tangible assets, and you can easily own them.|
|A Bitcoin user is not anonymous; all transactions are permanently and publicly stored on the network.||You could buy gold as you want, and no one may know about it.|
|It is a decentralized currency that is not owned by a central authority.||Gold is owned by central banks.|
|It is not regulated by any government.||Gold is subjected to several government rules and regulations.|
|As the total number of bitcoins is restricted in the market, they will never fall beyond a certain price.||With gold, the market is highly unpredictable.|
|Bitcoin’s rising value makes it a strong investment throughout all market conditions.||Gold, which acts as a strong inflation hedge, is no longer an attractive investment to customers during deflation.|
|It has displayed a splendid performance.||It may not perform if the economy is doing well.|
|Speculative in Nature|
|It is more speculative in nature, and prices can fall very easily.||It is comparatively less speculative.|
|As the way to deal in Bitcoin is online, the risk of online fraud looms large.||You can buy gold physically, and you do not have to necessarily go the online way.|
|The recovery of Bitcoin after a price fall was fast and furious.||The prices are still recovering after a fall.|
|You can store your bitcoins in the Bitcoin wallet at no extra cost.||You may have to shell out money for storing your gold safely.|
|Electricity or Internet|
|Needed mandatorily, you won’t be able to access your bitcoins otherwise.||You don’t need electricity or the Internet when you have gold coins or bars.|
According to a finance.yahoo.com report by Pras Subramanian, Peter Schiff, CEO and chief global strategist of Euro Pacific Capital Inc., opined that “I have a lot of sympathy for what people are trying to achieve with Bitcoin, it’s just not going to work. People think that because Bitcoin replicates all these properties that gold has therefore it can work as a modern-day gold standard, but it doesn’t have any value on its own.”
Points to Ponder
✧ According to a report on revelsystems.com by Anna, Bitcoin started trading at $13 at the beginning of 2013 and hit the rooftop at $1,200 in November. However, by the end of 2013, gold had declined steadily to about 27%. Experts have also predicted that 2014 may be a rocky year for gold.
✧ As the demand for Bitcoins continues to increase, given its limited supply, their value is bound to skyrocket. However, we have to understand that bitcoins are extremely volatile in nature. They fluctuate tremendously over a period of time. They have the tendency to fall as fast as they rise.
✧ Remember that today you can go to a restaurant that has integrated Bitcoin as a mode of payment and actually pay your bill with bitcoins. Will you be able to do that with an ounce of gold?
✧ However, one cannot completely disregard the considerable value attached with gold, especially given the risky nature of bitcoins.
✧ As digital payment mediums like bitcoins, PayPal, etc., will grow stronger, gold may lose its value because there may be limitations on what you can exchange it with as a commodity.
✧ Unlike gold, today Bitcoin is soaring high because there is no government intervention or restriction as of now; however, once this sets in, the picture may be completely different.
Our Verdict: While gold does seem more durable and a reliable form of investment, Bitcoin is running far ahead in the price race. This does make exciting headlines in the financial news reports. However, we must not forget that it is difficult to decide which one will fare better as alternate currency. No doubt, Bitcoin is the new hot investment on the block, but we cannot forget that its price came crashing down after the People’s Bank of China imposed restrictions on it, or some investors withdrew money fearing it to be a bubble. Hence, if you want to play safe, gold is any day a low-risk, high-value choice.