Bitcoin vs Gold
Anyone you ask will agree that they aren’t fully certain what will happen in the future. The one area with the most uncertainty is arguably the global financial markets. By now, almost everyone has experienced a stock market crash in their lifetime. These stock market crashes can be very tragic for people around the world, as they could lead to job losses, financial recessions, increased poverty, etc. The fear of what the repercussions of the next stock market crash will be has left investors scrambling in search of a storage of value to protect their funds. In this article, we will take a look at what a storage value is, why Gold is the most popular storage of value, as well as how Bitcoin compares to Gold.
Disclaimer: We want to emphasize that this is not financial advice. Cryptocurrencies operate in a volatile market, where values can drastically fluctuate in a blink of an eye. It is imperative to conduct thorough research and seek guidance from a qualified financial advisor before investing.
What is a Store of Value?
A store of value represents an entity—be it an asset, a commodity, or a currency—that possesses the inherent capacity to preserve its worth over time, exhibiting minimal depreciation. This reservoir of value can be held, retrieved, and exchanged in the future without forfeiting its fundamental value. An integral criterion for an effective store of value is that, as temporal progression unfolds, its worth remains either constant or appreciates.
It is noteworthy that the classification of a commendable store of value can be variable, contingent upon geographic and cultural contexts. In the realms of more advanced economies, the local currency often commands recognition as a reliable store of value for a substantial duration. Currencies characterized by a degree of stability—such as the U.S. dollar, the Japanese yen, and the Swiss franc—bolster their domestic economies, attributed to their robust resistance against inflation, even though they are not invulnerable to its influence.
While the foundational value of diverse stores of value can sway with the passage of time, they tend to possess a degree of dependability, retaining a modicum of value across a spectrum of market scenarios. This stability is further fortified if the store of value is endowed with a finite supply.
With the backdrop of this understanding, it's apropos to delve into the archetype of a prevalent store of value: gold.
Gold as a Store of Value
The perception of gold's intrinsic value has sparked ongoing debates, with some asserting it to be a vestige of antiquity, devoid of the monetary significance it once commanded. Advocates of this view contend that modern economic landscapes lean towards paper currency as the preferred medium of exchange, relegating gold's value to the realm of adornments. In contrast, there are those who champion gold's distinctive attributes and inherent worth.
Irrespective of the stance, gold reigns as one of the foremost stores of value, propelled by its widespread recognition and its historical prowess in maintaining value across prolonged epochs. Its reputation as a store of value is rooted in antiquity, dating back to approximately 2019 B.C., and its resilience in retaining value through myriad years testifies to its dependability.
However, gold does bear certain limitations. Transportability emerges as an issue, particularly when contending with substantial sums. While transporting small quantities is manageable, larger volumes present logistical challenges—imagine carrying the equivalent of a lifetime's savings in gold. Furthermore, gold's utility, while present in electronics and jewelry, is bound by the evolving landscape of innovation. The rapid strides in technology suggest that alternative, more cost-effective conductive materials might eventually replace gold, affecting its utility in electronics. A similar prospect looms over its use in jewelry, raising questions about its future intrinsic value if these conventional roles diminish.
An ideal store of value would not only retain its value but also encompass versatile utility, amplifying its benefits. This sets the stage for a comparison between gold, the long-standing store of value, and a potential newcomer in the form of Bitcoin.
Bitcoin, an emerging contender in the realm of stores of value, boasts unique attributes that warrant exploration and comparison.
Bitcoin vs Gold: Comparison
There is a lot of debate around whether or not Bitcoin will replace Gold as the “go-to” store of value. Let’s take a look at how the two differ from each other.
As mentioned, it is really difficult to transport the equivalent of an average person’s life savings in Gold since Gold is fairly heavy. In terms of transportability, Bitcoin is the more attractive option since it is digital. Unlike Gold, which is a physical object, large amounts of value in Bitcoin can be transported on a mobile device and transferred between people at a few clicks of a button. No matter how much value you store in Bitcoin, its degree of transportability remains the same, as opposed to Gold where an increase in stored value makes it more and more difficult to transport.
Gold has been around for centuries and has proven itself as a reliable store of value. Bitcoin, on the other hand, has only been around for just under a decade and still needs to prove that it can maintain its intrinsic value over extended periods of time if it wants to increase its chances of becoming the store of value of the future. After all, it’s human nature to trust something that has been around for a long time, especially when it comes to our finances.
Bitcoin has outperformed Gold in terms of price gains. However, a good storage of value is not necessarily the option that makes the most money, but rather the option that keeps the most money. As the famous investment saying goes, “It’s not how much money you make, it’s how much money you keep that is important”. Given Gold’s long-term performance of its value steadily increasing over the years, with minimal deterioration in its value, it is fair to say that Gold is the better store of value option for the conservative investor that is not looking to store their funds with the hope of making big gains.
However, as is the case with all things with perceived intrinsic value, their intrinsic value is just that - perceived. For example, what is the difference between a fiat currency and a bar of Gold? They’re both physical items with their own utility. The difference is how valuable we believe each one is. Of course, it is more difficult to come by a bar of Gold than it is to come by a fiat currency note, and Economics teaches us that supply and demand are the driving forces behind an item’s value. Question is, what if people decide they no longer want Gold? The role that Gold plays in the global economy has become less vital since its discovery. This may lead one to question whether or not Gold’s perceived value will remain the same or decrease slowly as time goes on, opening up the door of opportunity for a new asset, such as Bitcoin, to replace it and become the next store of value.
A store of value needs to have a finite supply, otherwise, its value will become diluted. As you may recall, getting a hold of a fiat currency note is not as challenging as getting a hold of a bar of Gold. This is because there is a larger number of fiat currency notes than there is bars of Gold. More notes are also being printed by governments to pay off their debt, making fiat notes less valuable.
Both Gold and Bitcoin have a finite supply. The only difference is we know how much Bitcoin there will ever be and we know when we will computationally “mine” the last Bitcoin. The same can’t be said for Gold as no one is really sure how much Gold can still be mined. Anyhow, both Bitcoin and Gold are evenly matched as a store of value when only looking at their finite supply.
Bitcoin vs Gold: Conclusion
The financial markets are one of the areas with some of the most, if not the most, levels of uncertainty as it is difficult to gauge what will happen in the global financial markets. Historically, there have been several market crashes, each with its own level of severity. To combat the negative impact that future stock market crashes may have, investors turn to stores of value to keep their funds safe. One such store of value, and the most popular, is Gold because of its proven track record of maintaining its value over time. However, Gold may have a longer track record and more price stability than Bitcoin, but will the role of Gold in the global economy fade out in the future? Only time can really tell, but if the answer is yes then Bitcoin has a very good chance of replacing Gold as a store of value. This is mainly because of its finite supply, growing traction in the global market, and its digital and decentralized nature which makes it more transportable than Gold as well as more secure.