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Investing in gold vs Bitcoin

21 Apr 2021 - Bitcoin & Cryptocurrency

Gold vs Bitcoin: one is a precious metal and the other is a cryptocurrency that is taking the world by storm. This makes it a difficult investment decision- should I go with physical or digital? When we put it that way, they both sound poles apart but surprisingly, both share many similarities. In fact, Bitcoin was meant to replicate many of gold’s properties including scarcity of supply and even the concept of “mining” (only its done digitally). Nonetheless, they’re both dissimilar enough to serve varied purposes in investors’ portfolios.

The advantages of both need to be considered before making a decision. Firstly, Gold is a naturally produced precious metal that cannot be artificially made. This means its supply is limited, which ties to its inherent high value and allows it to be used as a hedge against inflation. This metal is used for coins and bars. It can change forms but cannot go bad over time. Additionally, its unique chemical composition makes it nearly impossible to counterfeit ensuring its authenticity.

On the other hand, Bitcoin as a digital currency can be transacted by anyone anywhere in the world at any time. Although, much like gold, Bitcoin is also counterfeit resistant through protection by cryptography (codes to protect electric communication). It has a “public key” feature that can be used by anyone to send you funds and a “private key” for withdrawals.

Additionally, like physical currency, whoever is last in possession of the coin is the official owner- making it a “bearer instrument”. If one loses the private key, it is impossible to recover it. Another risk factor is that many hackers are always in search of vulnerabilities for their own gain.

It may be a shock to many, but crypto does not offer the anonymity one assumes. All transactions are recorded on the public ledger including their public key. Once anyone gets their hands on that key, they can trace all transactions made through it. Governments can use the public key to track down darknet criminals. Many use multiple wallets to get around this but it only offers limited protection.

Another difference between the two is their stability. Gold has historically been used as a safe haven asset owing to its stability in price and resilience to economic and political uncertainty worldwide. Bitcoin, however, is known for its sudden spikes and dips, leading to greater profits and losses. Its volatility can be problematic for some investors. Investors looking for stable long-term additions to portfolios normally prefer gold over Bitcoin.

Gold’s lower volatility does not mean poor performance. During the market crash of 2008, gold was the top choice for protection against inflation in Europe and North America.

Investors who swear by Bitcoin argue that its value extends beyond a medium of exchange and is an asset in itself. It is expected to maintain its long-term value or perhaps even increase during a global or economic crisis, just like gold. But it has not existed long enough yet to see if this is true.

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