Is bitcoin the new gold?
The recent global recession has got everybody thinking of preserving their wealth, not just the elite. Many investors have turned to consider store-of-value assets like Bitcoin and precious metals as ways to preserve their wealth and invest it tenfold. Whenever analysts or amateur economists catch a whiff of a looming recession, they come alive sounding alarms and sending everyone else into a frenzied panic. The Great Recession of the 2000s was followed a decade later by the Covid-19 recession, one of the shortest but catastrophic in history. The reoccurrence of recessions has renewed the interest investors have in making sure they lose as little as possible if a recession hits.
As an investor, you’d traditionally hold a portion of your portfolio in precious metals like gold or invest in digital coins like cryptocurrency. This provides a hedge against the losses stocks can take during a downward economic trend. This has proven effective and still is—but a new alternative is challenging this old-school capital preservation method. Bitcoin is proving to be an interesting asset for investors because it has been around long enough to gain recognition and support—it is even showing a few trends.
The origin story of bitcoin is one that most people are familiar with. It was originally created as an electronic peer-to-peer cash system by an anonymous figure in 2008. Under the pseudonym Satoshi Nakamoto, this person (or group) described the system, which allows two parties to make transactions directly with each other without involving a third party.
Bitcoin’s popularity has grown because of several factors: It’s a portfolio diversifier like gold. It also has the potential to be a long-term store of value with a fixed supply that protects its value, unlike fiat currencies, which are government-issued currencies not backed by a physical commodity and controlled by central banks.
Since then, the fascination with cryptocurrency has only skyrocketed and led to a number of strong supporters. Those confident in the asset believe its price increases are just the tip of the iceberg.
Gold, Silver, and Other Precious Metals
Widely regarded as an exceptional store of value for a millennia and counting, gold is a tangible asset people can easily pass down through generations. It’s also mainstream enough that can be accessed by traders of all backgrounds in various economic situations.
Central banks also rely on the value of gold to help create economic stability and growth. The U.S. itself used the gold standard up until the 1970s–which some investors argue was a safer option due to the volatility of current currencies. Others also feel this reliability and longevity may outlast cryptocurrencies. But that doesn’t mean gold’s value is always the same. Its price has fluctuated over the years and is still erratic every day, and it doesn’t generate current income the way other investments can.
It’s also worth noting that gold also has an environmental impact. All mining operations pose possible risks, including water pollution, toxic emissions and decreases in biodiversity. It also has a history linked to human rights abuses and funding armed conflicts.
Key Differences and Similarities
As it’s historically been around for much longer, gold has the trust of many investors. Although Bitcoin doesn’t have age on its side, its soaring popularity reflects genuine investor interest. Both Bitcoin and gold come in a shorter supply than other assets, but gold is also finite, just like many other natural resources. The law of supply and demand augurs higher prices for both.
Gold comes with fewer risks than some other investments than, say, real estate. The current system in place to trade it is relatively strong, and it’s hard to corrupt the asset. Bitcoin traders are also safe from corruption due to their encryptions, lack of a central system and complex algorithms. Not to mention the very real possibility of a security breach at any point in time.
Gold has several uses, from jewellery to dentistry to electronic manufacturing. It doesn’t tarnish over time and transports easily. Bitcoin has contributed to real-world applications of blockchain technology, and also supports a global population that lacks access to traditional financing methods or banking,
Diversifying a portfolio can help mitigate risk and potential loss. Most investors incorporate this tactic into their investment strategy in some way; many argue Bitcoin and gold can help. They each have their own set of pros and cons and choosing to invest in either one of them largely depends on where your priorities lie in terms of your investments.