In the last few years, the argument of Bitcoin vs Gold has gained popularity in the investment world. Gold is an acknowledged asset that has proven its stability, while Bitcoin changed the investing principle by showing exponential growth over short periods.
This way, two sides have formed around Bitcoin and gold.
The side supporting Bitcoin is mostly formed by crypto enthusiasts and investors, while the one supporting gold is formed by investors who already felt the reliability of gold and are skeptical towards crypto.
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The rise of Bitcoin
Bitcoin is the cryptocurrency initiated by Satoshi Nakamoto in 2009. With the emergence of Bitcoin, the blockchain technology was popularized and expanded to what it has become today.
The first real price increase occurred in July 2010 when Bitcoin went from $0.0008 to $0.08. In December 2017, Bitcoin hit an all-time high reaching $20,089.
By December 2018, Bitcoin plumbed under $3,500, but in the second trimester of 2019, its value skyrocketed to over $12,000 on June 27. In 2021, 1 BTC reached a value of over $50,000, getting a new ATH of $68,789.63 on November 10, 2021.
As for 2022, altough the value has dropped under $34k in January, Bitcoin is still fighting its way up, going over $47k by the end of March.
Bitcoin is young and ambitious. As an investment, it has seen exponential growth and an unbelievable degree of volatility in the last few years.
The tale of Gold
But when it comes to gold, the pattern changes. Gold has been used as a medium of exchange value since ancient times and through the Middle Ages.
Yet, carrying large quantities of gold proved to be unsafe and impractical, so, by the mid 17th century, it started being represented by banknotes.
The banknotes system was developed and improved, and throughout the 19th and 20th centuries, most countries used a monetary system based on gold as a standard economic unit of account. For more than a century and a half, gold had proven itself stable, around the value of $20 per OZ.
In the interwar period and throughout the second half of the 20th century, the United States had gone through several economic depressions, and the gold value was politically raised systematically.
The golden standard system proved to be too restrictive for the economical needs of modern world society. Therefore, in 1973, Richard Nixon decided to sever the US Dollar’s tie to gold and adopt the FIAT system. The rest of the countries followed the decision in the decades to come.
The first Gold ETF was launched in 2003, which boosted its value, breaking the $400 per OZ barrier.
By the time we wrote the article, an ounce of gold value is $1,926.
Gold is powerful and proven. It has shown itself to be the most reliable keeper of value for long periods. Also, gold gets more valuable in times of economic troubles and instability, contrary to other assets.
Bitcoin vs gold utility
Bitcoin’s technology can find usage in many industries, including blockchain supply chain or blockchain healthcare. However, we will refer strictly to Bitcoin.
When it comes to Bitcoin’s utility, it serves as a medium of exchange of value. You can use it to buy or sell items from people and companies that accept Bitcoin as payment.
Besides payment, you can make peer-to-peer money transfers without an intermediary, from one wallet to another. This characteristic also allows international transfers and payments without needing any kind of payment processor.
Bitcoin works as a store of value but is considered a speculative asset because of the unprecedented volatility.
When it comes down to utility, Gold is considered one of the most useful metals. Besides its marvelous color, gold has unique properties. It is an amazing conductant, does not corrode, and does not react to other external substances, but is easy to combine with other metals.
Currently, most of the gold is used in the jewelry industry.
Actually, banking and finances come second in terms of gold usage. Besides jewelry, coinage, and bullion, gold is also used in:
- Arts and crafts, as thin sheets of gold known as a gold leaf;
- Electrical connectors and printed circuit boards;
- Spacecraft and skyscrapers, helping in protecting from the Sun’s heat;
- Infrared light-sensitive microscopes, as gold-coated mirrors;
- Medicine, for the treatment of certain types of cancers and other affections.
In trading, gold proved itself stable, performing well in times of economic distress. However, its value evolves over long periods so that you may see profits after decades.
Bitcoin and Gold as payment
The most known Bitcoin payment in the crypto community took place in 2010. On May 22, 2010, two large Papa John’s Pizza worth $30 were bought using 10,000 Bitcoins.
The day of May 22 remained in the community’s memory as Bitcoin Pizza Day.
When it comes to paying with Bitcoin, there are a few worldwide-known companies that accept cryptocurrency as a payment. Some of them are Wikipedia, Microsoft, Expedia, Kfc, Playboy, and Subway.
Basically, you can use it to make a donation or pay for food, materials for academic purposes, software & hardware, and diverse services.
When it comes to paying in gold for goods and services, the answer is simple. Legally, you cannot. You have to convert your gold into an accepted currency.
Besides, Bitcoin network value is not defined by cash flows or dividends, which are traditional indicators used to assess stocks. Instead, the price of bitcoin is controlled completely by supply and demand dynamics driven by buyers and sellers.
Where numerous banks determine the value of Gold, an oversight committee and a panel of internal and external chair members compute statistics based on supply and demand in gold futures derivative markets, generating averages for both the spot and fixed price.
Experts opinion on Gold vs Bitcoin
The crypto community is often referring to Bitcoin as “digital gold.” But when it comes to the comparison between Bitcoin and gold, the investment experts’ opinions are divided.
Peter Schiff is the CEO of Euro Pacific Capital and has self-professed himself as the “gold bug.” He is notorious in the crypto community for his skepticism about Bitcoin. Schiff considers Bitcoin too volatile to be used as a medium of exchange and disagrees with calling it digital gold. On the other hand, he has repeatedly advocated for gold’s power as a medium of exchange due to its low volatility.
Jonathan Reichental is the CEO of the Human Future and a professor at UC Berkeley. His opinion is that Bitcoin has too much volatility right now. It should first stabilize and get a certain degree of regulation before being recognized by the organizations and governments.
Tone Vays, a trader and crypto analyst, has a pro-Bitcoin stance on this subject. Even if volatile, Vays considers it the greatest store of value in history, especially because of the ‘unconfiscability propriety.’ Contrarily, gold can be ‘nationalized’ if the government decides so.
The debate of Bitcoin vs. gold may never reach a single final conclusion. It is known that both ways of payment have an important role in the marketplace. Having each advantage and disadvantage that will appeal to different sorts of investors.
Bitcoin offers the potential for high returns and diversification, but it comes at the cost of security. Where gold is regulated, it offers superior risk management when added to your portfolio, but it holds less promise in terms of returns. Furthermore, both options have ethical difficulties.
Bitcoin is a challenger, is dynamic, and promising, but still has high volatility. It has a lot more to prove before being accepted worldwide.
On the other hand, gold has proven itself. The world is accustomed to it and acknowledges its value. Gold finds many uses in industries and retains its value, even slightly increasing over long periods.
While the blockchain secures Bitcoin, gold is susceptible to the social-political environment and regulations. It is tough to move around with gold, especially crossing borders. You cannot legally buy anything with it, and it is hard to liquidate.
We can agree they are rather different, but Bitcoin and gold do not have to eliminate each other. Smart investors know they have to diversify their assets. Therefore, they can keep both gold and bitcoin in their portfolios and have their assets gain value.