Bitcoin vs Gold

There are fundamental differences between gold and bitcoins, the main one being that gold is a physical metal used as a medium of exchange and bitcoin is a digital currency in existence since 2009. Additionally, gold is used in other industries – such as manufacturing, industry, making of the jewelry, etc. The differences however run much deeper than that.

Bitcoin was created Satoshi Nakamoto back in 2009 and it is the world’s first digital decentralized currency. One of the key points about it – bitcoin is not regulated by any central bank. With the recent political and economic instability which escalated the public mistrust in the national currencies investment into bitcoins increased dramatically. However, this decentralized structure is a cause of concern on the other hand. While gold is easy to track and impossible to fake the same is not true for the bitcoin system. One of the largest Bitcoin exchanges, MT.GOX based Japan crashed recently because of a flaw in their software allowing hackers to steal millions of dollars’ worth of Bitcoin. Additionally, the relative novelty and volatility of this currency is of concern to investment. As monetary vehicles are no longer pegged against gold its appreciation in value is more meaningful – especially when taking account of interest rates.

When deciding on which type of investment to make bitcoin’s lucrative short term profiting structure needs to be measured against the democratised structure of gold investments these days. The incorporations of many new technologies of investing in gold – such as the ability to buy vaulted gold in a split second, set up reserve funds arrangement and recovering of the metal in any point on the planet, make gold a fast and a safe type of investment with low transaction costs.

That said, supply factor stands firmly on the side of bitcoin. Yes, gold is rare but bitcoin is rarer. One of the factors making bitcoin so attractive is its limited supply potential. The entire cryptocurrency system rests on the notion of its limited nature to 21 million bitcoins – no more can ever be produced. The same cannot be said about gold and its supply has been increasing 1-2% over the recent years.  So naturally, with the supply for bitcoin firmly restricted and demand on the rise the price has been going up dramatically with further strong upside potential. As it becomes easier to trade with bitcoin and more and more companies, countries and corporations accepts it as the method of payment – the price is set to climb higher.

However, one strong point in favor of investing into gold long term is that it carries solid baseline value – it will always have industrial demand backing it as well as the jewelry sector, making it a safer long term bet. Cryptocurrency does not have any baseline value, making it much more speculative in nature. Finally, gold is much more liquid and is easier to turn into cash as investors all over the world are interested in this metal only a select number of investors are after bitcoin making it a much less liquid investment.

On balance, when comparing the attractiveness of investment into gold versus bitcoin several questions need to be considered. One – is it this a short term or a longer term bet? Bitcoin provides potential for large amounts of short term profit and gold gives an opportunity to make a safer investment over the longer period of time. Secondly, the levels of risk involved in investing into the two vary significantly – bitcoin being decentralized and lacking in baseline value provides a highly risky high margin speculative investment whereas gold sits firmly on its strong fundamentals making the full erosion of value never possible.