What is a better store of value – Bitcoin or Gold?
An asset/commodity that offers protection against inflation and the loss of value of other assets during normal times or crises can be said to satisfy the store of value/wealth property.
In simple terms, to regard an asset as a store of value, it should be able to retain its value and also appreciate over time. Over the years, bitcoin and gold have been the main assets that come to mind when you talk about a store of value.
Although gold is an asset that has been around for a long time and has maintained its status as a store of value over these years, since bitcoin came into existence, it has proven to be a worthy competitor for the long-standing asset. Due to the impressive performance of the digital asset over the years, some even branded it “Digital Gold”. While some investors will always prefer to buy bitcoin, gold also has its supporters with valid reasons as to why they prefer the asset over digital currencies.
Are they on the same level? Is bitcoin better than gold? Or is gold better than bitcoin? To answer these questions, let’s introduce the two assets briefly and compare them.
Gold
Gold is a unique and rare metal that does not rust or tarnish. Due to its nature, the metal has been used as primarily a store of value and at times as a means of exchange. It has always played a vital role in the international monetary system and has been perceived as the ultimate store of wealth for over 5000 years.
Since the early 1970s, the volume of gold produced annually has tripled and the demand has multiplied. Gold markets have boomed across the globe and the asset is now bought by a far more diverse set of consumers than at any previous time in history. China currently is the largest gold-producing nation.
Bitcoin
Bitcoin is a digital currency that was created in 2008 to replace fiat currencies. It is, literally, money in digital form. Unlike fiat currencies such as the pound or dollar, Bitcoin is not issued by a central bank. Instead, bitcoin is automatically created and released as a reward through a process called mining. Miners are the entities that process transactions on the bitcoin blockchain.
Over the years, bitcoin has continued to perform beyond expectations despite the price volatility, and the number of people looking to buy bitcoin in South Africa continues to grow day by day in every part of the world. South Africa is one of the leading countries in crypto adoption and you can buy bitcoin from a P2P exchange like Remitano with your local currency (Rand) and store it in a bitcoin wallet.
Comparing Both Assets
There are several characteristics to consider when choosing an asset as a store of value. Below is a comparison between bitcoin and gold:
Price Stability and Volatility
For any investment option, you need to consider the history of the price. The high volatility of bitcoin is one of the major concerns for investors that want to buy bitcoin and hold. It is a very volatile asset with a series of price movements within a short period. Although the constant price movement has proved to be an advantage for cryptocurrency traders. Looking at the price history of bitcoin, the asset reached an ATH of $20,000 at the start of 2018 before dropping to a low of $4000 in 2019. However, the asset set an ATH of about $61,600 in March 2021.
The price of gold is more stable and doesn’t experience the kind of price fluctuations or volatility that bitcoin has historically.
Growth potential
Gold is an asset that has grown consistently over the last decade and century. However, bitcoin since its existence has exceeded expectations. Although it will always have unstable prices because of its volatile nature, it has, however, proved to be a good option with a consistent increase in value even during economic breakdowns.
Protection against Inflation
Both assets serve this purpose. Gold is an asset that has proven to be a great tool to hedge against inflation due to its price stability. People prefer to buy the asset to protect themselves from a decline in the value of the fiat currency.
Unlike traditional fiat currencies that are prone to inflation due to a range of factors including government/central bank policies, no government or financial institution can directly influence the value of bitcoin. This makes it a great tool against inflation. Although the volatility of bitcoin is an issue for some people.
The limited supply of Bitcoin and the rarity of gold is also what makes them great assets for hedging against inflation.
Portability
This means the ability to move or transfer the asset with ease. Due to the digital nature of bitcoin, you can send any amount of bitcoin to anybody, anywhere around the world in just a few minutes.
Gold on the other hand isn’t easy to move around. Imagine the stress and complexity of moving $1 million worth of gold that weighs about 220 pounds. It is much easier to make cross-border transactions ranging from small to very large using bitcoin.
Liquidity
Both gold and bitcoin have very liquid markets. This implies that they can be converted to fiat money anytime. However, gold is not as easily convertible to local currency as bitcoin. Converting gold to local currency will take longer and the process can be cumbersome. To convert your bitcoin to local currency, all you need is to use exchanges such as Remitano where you can buy bitcoin or sell.
In conclusion, it’s clear that both assets fulfill all the criteria of being very good stores of value. Although choosing a better one would depend on the individual investor and their preferences. While most investors would choose bitcoin over gold due to its recent performance, some believe gold has stood the test of time and take the high volatility of bitcoin as a potential negative. Find out the 20 best platforms to buy Bitcoin in South Africa.
