Why Bitcoins are Incomparable to Gold
The following article is created and or curated by the Orion Metal Exchange for the benefit of our followers. We seek to provide relevant precious metals, economic and geopolitical content that can impact your retirement and savings. If you are interested in learning about precious metals investing, call 1-800-559-0088, for a FREE investor kit.
It was in the March of 2017 that a Bitcoin received the same bid as an ounce of gold. Ever since then, there have been talks of both being viable investment opportunities. However, the question that ensues is: does parity with gold also guarantee comparability?
This observation has fueled a dialogue about how and if cryptocurrency can compete with precious metal assets in the financial arena. Whether or not it’s a substitute for gold will be explored in this blog.
Why is Gold compared to Bitcoin?
Serious investors try to steer clear of investment opportunities involving fiat currencies like the US dollar. The Weimar Republic is a good reminder of how entrusting the bureaucracy with your savings doesn’t pay well. The bureaucracy is established on a different system, which may or may not act as investors deem best.
For centuries, precious metals such as gold and silver have been the money standard and that has remained true until today. Even though paper currency has now been universalized as the standard medium of exchange, precious metals still hold immense value.
However, the digital currency or cryptocurrency is an invention of modern times. It’s premised on the ideology that no central authority should have power on the supply of currency or posses physical holding of the currency. Fulfilling all these modern requirements, bitcoins attract investors because they offer decentralized control, exclusivity, anonymity and exemption from taxes.
Hence, the primary reason why both forms of currency are compared is that they store of value, and competitively well, too.
Problems with Digital Money
If you assess the returns that gold offers based on functionality, its market value doesn’t reflect its versatility in industrial processes alone. It’s not valued at $1,300 per ounce because it can offer $1,300 worth of industrial usefulness. It’s valued at $1,300 because people think it offers a store of value that’s worth $1,300 for every ounce.
Even though bitcoin set off in the footprints of gold, it still hasn’t been able to overshadow the value that gold offers. While the current market cap of gold is a staggering $7.5 trillion, the market of bitcoins is at $143 billion. It’s fair to say that even as a store of value, digital currency is only storing 2% of the wealth preserved in gold.
But the decentralization of bitcoins is not a win-win for governments as it may be for investors. They have made the criminal path for hackers, online scammers and other offenders quite seamless and have said to account for $72 billion worth of crimes. Wherever direct cash transfers are too risky, digital currency can be used.
Gold: An Only Undisputed Hedge Against Risk
Even though bitcoins saw exponential popularity until 2017, it soon proved how it was too good to be true. Gold, on the other hand, grew with maintained stability that didn’t jeopardize investors who chose to secure their savings as gold holdings.
What makes gold the ultimate winner is neither the value, returns or utility it offers. It’s how it acts as a hedge against risk, be it the collapse of the financial system or depreciation of the currency. It’s because of this rare quality that gold remains the top choice for commodity investment, in the US and around the world.