In its purest form, gold (Au) is a slightly reddish yellow soft metal with a shiny appearance. The high order metal has an atomic number of 79, which makes gold one of the high atomic number elements that occur naturally.
During the last half of the past millennia, the world embraced gold as a global currency across the world increasing the overall value greatly. From the goldmines of Timbuktu to the ancient Wu kingdom, gold was recognized as a precious asset that was scarce.
Gold prices in 2018 (per Kg of gold) Image: Bullion by Post
“Despite the removal of the gold standard in the early 1930’s across the U.S. and Britain, gold has remained a valuable asset today.”
As the world is becoming more and more computerized and digitized, Bitcoin (BTC) is gaining traction to offer the same long term value gold offers in the near future. The invention of Bitcoin in 2009 provides a gateway to store value on a digital platform permanently on a blockchain that is transparent, secure and efficient.
Bitcoin offers a long term store of value to the “HODLers” of the coin as seen in the past decade of existence.
Bitcoin (BTC) price since January 2018
In the past gold has been considered the best store of value but with the introduction of Bitcoin its days may be numbered. A research carried out by Coindesk asking investors what they would choose to invest in between gold and BTC if given $1000 USD revealed most would choose the latter.
However, what fundamentals should you look at before determining the better investment of the two? Looking deep into fundamentals of an asset of value, three key features arise:
- Inflation/deflation rates
- Trust and reliability of the asset
- Future prospects of the asset
1. Inflation and deflation pressures
One of the most important issues to consider when holding an asset is the effect of inflation on the value. Gold in its part faces inflationary pressures on the supply of gold at a rate of 1-2% annually. This is one of the advantages that Bitcoin (BTC) holds over gold as a store of value as the former has a fixed supply cap at 21 million BTC coins. The sneaky inflation on gold makes it’s a poorer choice to store value compared to BTC which will remain disinflationary according to the protocol.
One of Bitcoin’s enthusiasts, Chris Burniske believes bitcoin is growing to overpower gold’s reign as a global store of value. He spoke in an interview on the inflation problem of gold saying,
“If you were to ask people what gold’s supply schedule looks like over time, they probably wouldn’t draw you something that looks like an exponential curve. With gold being sneakily inflationary, it’s not set up to preserve value in the way that bitcoin is.”
2. Trust and reliability of the asset
The most crucial factor that keeps gold in the lead as a store of value is the 1000+ year history of the asset being used as a SoV. Bitcoin is a recent invention that is yet to gain the trust and reliable status gold built over the years, especially as a store of value.
Government around the world have tried to knock down the use of gold over the course of 5000 years since the inception of civilization but the asset remains valuable today. One example is the directive to stop the usage of gold in the U.S back in 1933 by Pres. Roosevelt which failed miserably. The gold standard was finally abolished completely 50 years later in the 70s but the asset has maintained its trust with the people.
Bitcoin however has only been in existence for more than a decade which limits the trust in the technology despite its superior qualities to gold. However, the digital asset still holds the top position among its peers as the oldest and most trusted cryptocurrency.
Bitcoin also does not qualify the reliability test of gold as governments control the internet and this could affect the use of the coin in future. For an authoritarian government, there will be little to stop them from shutting down operations of the coin if need arises despite the anonymous nature of the coin.
3. The future stability of the asset
Finally, the future value of Bitcoin and gold are heavily determined by the future prospects in the mining process of the assets.
Bitcoin against gold
Pro-bitcoin enthusiasts argue that gold mining will soon face technological advancement that will see an increase in gold supply. As the supply of gold on earth dwindles, the only option will be to head to outer space to mine gold from asteroids and possibly other planets. While this may be plausible in the far future it is unlikely to happen in the next 30 years or so. The scarcity of gold in the world and inability of humans to produce the element shows that gold will continue to be valuable in the future.
The same cannot be said of Bitcoin as it relies on a cryptographically secure platform made by humans. The past has shown that humans are prone to error and change. Unlike gold, bitcoin faces a technological threat on the security with the advancement of quantum computing. Furthermore, the value of Bitcoin is heavily dependent on the overall adoption of the asset in the coming years.
Parting Shot
The article above favors gold over bitcoin as the long term asset to store value for both the trust it has created in the past years and future prospects of the asset. This in no way disregards the power of BTC as the oldest and largest digital asset in a digitally growing society.
The two assets offer excellent options to store wealth but in different time spans. Bitcoin is currently more suited to hold wealth in the short term as more people adopt the digital assets while gold is suitable as a long term SoV given the stability it offers across the world.
It is not a competition between the two. Bitcoin is a complement rather than a substitute to gold.
