In many instances, the properties of gold and Bitcoin are the same, and they both are “social contracts” between humans. During the pandemic, the price of gold spiked initially when the government spending was announced but underperformed when inflation arrived. Gold has been considered a safeguard of value for thousands of years. It is scarce and accepted almost everywhere as a medium of exchange and store of value. However, over the past decade, gold has shown more volatility than in previous years. The volatility is due to recent gold discoveries, increasing the supply between 1%-4% per year.
Bitcoin has more in common with gold than fiat. Bitcoin has become a safeguard against most countries’ inflation and economic failure. The current crisis in the worst inflation-hit countries has displayed Bitcoin’s benefits, taking the lead over its precious metal counterparts. There are excellent reasons why Bitcoin has become an asset in times of debt crisis.
Bitcoin is a peer-to-peer, open-source, decentralized network, meaning no one can freeze the blockchain or funds. Bitcoin users have 100% control over their money. Bitcoin transactions can happen 24 hours a day.
Store and retention of its value:
Bitcoin is 13 years old and has gone through various bull and bear cycles before it became the ultimate currency of the internet. It began as a collectible and has now proven itself as functional and secure money.
It is easier than ever for institutions to understand Bitcoin because of improved education and infrastructure. Banks, companies that have a public listing, and individuals worldwide believe that Bitcoin will preserve value despite inflation at an all-time high.
In spite of gold’s stability or worse performance, its history of holding value during economic uncertainty has been severely affected by an increase in supply. Bitcoin users prefer to use fiat currencies instead of Bitcoin because their faith in fiat currencies is waning because of inflation and decreasing purchasing power. In the long term, they prefer to hold Bitcoins because they believe they will retain value.
Over the last decade, gold’s return on investment (ROI) in USD is seen at -0.25%, and pale in comparison to Bitcoin — 437,171% since 2011
Hedge against inflation:
A hedge is resistant primarily to inflation as a factor, offering stability to a portfolio or retaining or growing value. A closer look at the performance of gold compared with Bitcoin shows that while gold has seen a modest gain of 21.84% over the past two years, the price of Bitcoin has increased 311%.
Gold has a strong background of thousand of years, while Bitcoin has barely more than a decade of existence to justify itself. Bitcoin is13-year old and is still fully defining its characteristics as a hedge in this modern economy, considering its performance compared with other assets while inflation is hitting an all-time high of 40 years.
Scarce and Deflationary nature:
Gold has been a successful commodity holding value for the human race since ancient times. The world’s supply and amount of gold increase by 2% each year due to mining. We don’t consume gold. Most of the gold that has been mined still exists today as bars, coins, and jewelry. Even the tiny bit that is used in industry is often recycled. Gold is never a true scarce asset; as the price of gold increases, more gold is mined, decreasing its cost.
Only 21 million Bitcoins will exist. The number will not increase beyond that number. As Bitcoin miners get closer to exhausting the supply, it becomes more challenging to mine the Bitcoin, making it dynamically scalable. This makes every last Satoshi valuable.
Best asset under economic uncertainty/geopolitical uncertainty:
Gold has consistently performed better in recession and is considered the crisis commodity because of its holding value during uncertain times. Millions of people migrate from one country to another to wars and geopolitical scenarios and face instability; carrying valuable objects is risky, with people being subject to asset seizures and theft.
On the other hand, It is much harder to confiscate Bitcoin than gold. Bitcoin does not have physical mass, allowing it to be stored in a space as small as a thumbtack or inside a tattoo. Bitcoin can be easily hidden from those who wish to take it. A single Bitcoin is made up of 100,000,000 units called “satoshis.” which shows Bitcoin is highly divisible.
Gold requires expensive equipment to validate gold as nowadays, we can see millions of dollars of fake gold getting seized by the governments worldwide. However, this still comes with verification errors, as we can see phony gold bars with copper gilded gold. Other contracts had been made on top of this gold, leading to cascading losses. Whereas as Bitcoin’s supply, every transaction ever made and new transactions are easily verifiable using a computer with internet or by running a full Bitcoin node.
Gold and Bitcoin have their advantages and disadvantages. However, only Bitcoin shows a clear runway in these modern times. It cannot be taken lightly anymore, as it’s showing strength during economic uncertainty. Sovereign fiat currencies are printed from thin air, and they are deemed to fail in the future.
In these modern times, stacking coins of gold may not be the answer to preserving wealth while we have new species of money based purely on maths that can help the masses on a global level. It’s called Bitcoin.