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TEMPO.CO, Jakarta - The 21st century marks the rise of digital assets, like Bitcoin. The latter has emerged as a new player in the investment landscape, offering a non-conventional way of accumulating wealth other than gold.
As a pioneer in cryptocurrency, Bitcoin gained popularity over time and soon captivated a certain niche with the financial freedom, potential for growth, and technological intrigue it offers. Some, according to Investopedia, even started calling this cryptocurrency “digital gold." But, can Bitcoin actually replace gold?
Citing Investopedia, Kinesis Money, Forbes, and other sources, we’re going to look at a simple comparison of Bitcoin and gold, providing an overview of which one is worth your investment.
Understanding Bitcoin and Gold
a. What is Bitcoin?
Investopedia defines Bitcoin (BTC) as a virtual currency, popularly referred to as a cryptocurrency, serving as a form of payment like money. People can invest in this currency and purchase something or exchange value.
Bitcoin began its journey in the investment market in 2009. It was Satoshi Nakamoto, an anonymous individual or group, who created this digital currency. January 3, 2009, marked the first mining of the Bitcoin block, known as the genesis block.
Soon after its foundation, Bitcoin gained the world’s attention, thanks to its deflationary and censorship-resistant properties. Despite holding an array of potential, Bitcoin is highly volatile, and its market is dominated by speculative trading.
b. What is Gold?
Gold has been a globally recognized store of value and a symbol of wealth for thousands of years. Long before becoming a type of investment instrument, this invaluable metal once circulated as currency prior to the introduction of paper money, the World Gold Council explains.
Nowadays, gold has been perceived as one of the safest investments, especially during periods of economic downturn. Regardless, you might complain about the extra charges in terms of storing and owning the gold.
Bitcoin vs Gold: Similarities and Differences
a. Similarities
Bitcoin and gold share some similar traits in certain aspects. Citing Kinesis Money, both assets are identical when it comes to the supply.
Bitcoin can only be “mined” up to 21 million units. The same situation applies to gold, which is hard to find and requires a high intensity of labor, hence the finite supply.
Both also experienced a rapid increase in value. The gold price spiked during the gold rush between 2002 and 2011. Bitcoin has also seen a significant increase in value, reaching levels as high as those of gold.
This signifies that both the markets of gold and Bitcoin are subject to significant risks and high volatility.
b. Differences
According to Investopedia, here are some primary differences between Bitcoin and gold:
Regulation
- Gold is highly regulated, and, technically, you must purchase it from registered brokers and dealers.
- While encryption and a decentralized system have helped prevent Bitcoin from being stolen and faked, many countries have yet to establish the regulatory infrastructure for Bitcoin.
Volatility
- Bitcoin is subject to media effects, regulatory actions, and hype, making it extremely volatile. Whereas gold experiences price fluctuations over time, it tends to be more stable, making it a top choice for those seeking a safer asset.
Liquidity
- Gold is among the most liquid investments, allowing you to easily convert it to cash. On the other hand, Bitcoin is considered less liquid since its liquidity heavily relies on the platform you use.
Utility
- Gold has long been the symbol of luxury and even once used as a currency, whereas Bitcoin is currently limited to being a virtual currency.
Key Considerations: Pros and Cons of Bitcoin and Gold
a. Pros and Cons of Bitcoin
The following are some of the pros and cons Bitcoin holds, as highlighted in Forbes Advisor:
Bitcoin Pros:
- Bitcoin and other cryptocurrencies are believed to offer protection against inflation.
- No central authority controls Bitcoin, ensuring transparency in transactions.
- Bitcoin offers speed and cost efficiency when performing transactions.
- Bitcoin can be purchased in multiple currencies, from U.S. dollars to European euros.
Bitcoin Cons:
- Despite promoting anonymity, Bitcoin is still prone to interference from federal or government authorities due to its pseudonymous nature.
- A high risk of attack from other “miners” while on the blockchain.
- There is no refund or cancellation policy in Bitcoin.
- From an environmental standpoint, Bitcoin and other cryptocurrencies result in immense power consumption due to the necessity of using high-spec computers.
b. Pros and Cons of Gold
The following are some of the pros and cons of gold investment as highlighted in Forbes Advisor:
Gold Pros:
- Many investors have made gold their haven, thanks to its stable value even during the event of market downturns.
- Gold serves as a hyperinflation hedge.
- Gold is the perfect option for assets to be included in your portfolio.
Gold Cons:
- Gold is only lucrative when the market price is high.
- Extra costs are often required for gold ownership and storage.
- Physical golds have higher taxes.
So, Which Should You Invest In?
Both Bitcoin and gold have their own benefits and drawbacks. As quoted from Investopedia, whether Bitcoin is better than gold depends on your investment goals, risk tolerance, and other aspects.
Indeed, gold investment, as pointed out by Forbes, is reputable for being a safe haven in periods of extreme volatility. However, it is not preferable if the economy is strong.
As for Bitcoin, it is still relatively new within the investment market, so it has yet to show its full potential. Although, according to Investopedia, the market price of Bitcoin is higher than gold, it is built on speculative trading, which makes Bitcoin volatile.
INVESTOPEDIA | FORBES
Editor’s Choice: Beyond Bitcoin: A Guide to Altcoins
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