Both assets provide a wide range of benefits to portfolios though which one comes out on top?
With central banks all over the world seemingly having a debasing contest over their currencies, and as inflation looms, it might be the time to revisit those inflation hedging strategies.
Naturally, the hot topic is: between Bitcoin and gold, which is the best inflation hedge and superior hard money?
We’ve compiled several traits and compared the two. Here’s what we’ve found:
Gold has been a trusted store of value for millennia, whereas Bitcoin is a new disruptive tech and despite its short existence, it has faced and endured its trials and tribulations and is still very much standing, making it clear that it is here to stay.
And the longer Bitcoin sticks around, the higher the public’s confidence levels will reach.
Having unlimited supply does not correlate with being a good store of value. By design, Bitcoin supply is capped at 21 million. Gold has always been scarce throughout history, but it also has certainly seen increases in its supply.
Gold has intrinsic value as a commodity as there is demand for gold in several industries, outside its basic functions of money. Bitcoin, on the other hand, does not.
Moreover, if people by lack of confidence do not accept it or its monetary functions, Bitcoin will simply have no value.
However, having no intrinsic value can also be a positive trait as if it has no other functions, it is also not a subject to supply shocks.
For an item to be fungible, it must be able to be replaced by another one exactly like it. As such, exchanging a bar of gold for another bar could be regarded as easier than exchanging Bitcoins as, despite having the same value, Bitcoin’s traceability on the blockchain may make some comes not so fungible as they can be linked to illicit trading and thus not be accepted by merchants.
Gold, however, retains its value and even if it is centuries old, it can still be accountable in our days. With that being said, there are very encouraging signs that Bitcoin’s network will work on improving both its privacy and anonymity as well as its users’.
Despite showing clear signs of durability, it is still too early to comment on Bitcoin as many believe the network is still at its infancy and regulatory actions or hackers might try hamstring it. Gold, on the other hand, has been around for many centuries and has since been able to retain its position as a valuable asset and store of value.
Although gold can be divisible by weight, unlike Bitcoin’s proposition, gold can hardly serve the purpose of being a medium of exchange in society.
Comparing the two here is stating the obvious. Whereas transporting gold is risky, time consuming, and a very difficult endeavor, Bitcoin can process transactions across the world at the speed of lightning.
Gold’s authenticity is easily verifiable. Bitcoin’s authenticity is verified by cryptographic signatures, mathematical formulas, and a decentralized network, all of which working in unison.
Confiscation and Resistance to Censorship
Bitcoin is decentralized and distributed in a peer-to-peer network, making it very resistant to censorship, whereas gold’s physical properties can make it both challenging in terms of mobility and susceptible to being regulated.
In what concerns confiscation, there have been laws which made gold ownership illegal. Moreover, when transporting gold, confiscation risks might be looming depending on the value being transported. Bitcoin is less prone to confiscation.
We’re inclined to say that Bitcoin outperforms gold in many of these categories, but not all of them.
Some may say that Bitcoin is probably the hardest form of money ever to be created while others claim it is risk prone as it is still a nascent technology.
But even though gold has proven itself as money for millennia, withstanding the test of time and earning its trusted status, Bitcoin’s astonishing potential upside makes us think that it might be good to consider having both of them in our portfolios.