Bitcoin is the most valuable cryptocurrency since its inception. Bitcoin’s reputation is due to the 2017 bearish run experienced in the crypto world where the market value hit an all-time high. To date, many still consider Bitcoin as a viable investment for any cryptocurrency lover.
Before ruling Bitcoin as the best cryptocurrency investment, it is essential to see how it fairs against other assets in its category. In this case, Bitcoin can be compared to gold, the most precious metal.
In this guide, you will get a comprehensive analysis of properties that make gold and Bitcoin strategic investments. Furthermore, we have coverage of similarities between the two assets and how they stand out from one another.
Over the years, gold has managed to establish itself as the most valuable form of money in any part of the globe. From ancient Egypt, Gold was used as money to facilitate the exchange of goods and services. In short, gold is the ultimate hedge in financial terms.
Gold derives its success from history alongside some outstanding properties. The asset is limited, divisible, hard to destruct and almost impossible to produce counterfeits. According to GoldPrice, the gold evolution had a few huge price drops – a similarity shared with Bitcoin.
As we may observe, Gold touched the 21,733.90 USD per kilogram on February 1st 1980. Another high was obtained in the same year – when the price reached $21,766.06. But then a decline started and in June 8, 1982 – The gold price was just $10,481.14 USD per kilogram. In just two years, gold lost more than half of its value. The decrease continue until the 2000s. In 16th November 2001 – a kilogram of gold had a $8,825.38 USD price.
But from there, it started to grow to the maximum value of $57,601.28 USD per kilogram, obtained in November 10th 2011. A huge value that probably only a few people were expecting. But since that value, the price decreased again. In 2015, 9th December – 1 kilogram of gold was $34,645.64. This means that from 2011 until 2015 – gold lost 40% of its value. Right now, a kilogram of gold have a $42,250.58 value.
Even the most known precious gold had a a rough time. And unless you you purchased it more than 10 years ago – the profit is pretty small. Over the 6 months, the profit is set at 8.40%. But if we look at the yearly chart – purchasing gold a year ago would have results in a profit of 0.05%, on the current writing date of 10th February 2019. Over 5 years, there is a profit of 3.05%
As you may see, gold can be pretty volatile too. In fact, it decreased from 44,123 USD per kg on 13th March 2014 to 33,784 USD per kg on 17th December 2015. And the price bounced back a few times, but failed to regain its current all time high. Of course, a smart trader that would buy the same amount of gold each month would have a good profit until now, but we’re not all that ‘smart’ nor have the financial opportunities to invest in Gold.
So investing in Gold 5 years ago would have brought you a 3.05% profit. Which if we take into consideration the inflation rate per each currency – it means that you probably lost value over the time. On a shorter term however, an 8 -12% profit could have been obtained in a matter of months.
Compared to gold, Bitcoin came into existence a few years ago. It is the most important cryptocurrency that sets the tone for the market. Bitcoin traces its birth to the panic that hit the global economy back in 2008. The volatility led to the creation of Bitcoin that allows individuals to transact with each other, online, anywhere in a safe and anonymous environment.
Bitcoin was created by an anonymous individual identified as Satoshi Nakamoto who stated that the cryptocurrency is a form of electronic cash that is peer to peer. According to Bitcoin’s whitepaper, payments involving the cryptocurrency do not have to go through any institution. Some of the outstanding Bitcoin features include: it is limited, divisible, counterfeit free and democratic.
Same as gold, Bitcoin has a limited supply that at one moment will deplete. And only the ones that have a BTC or a fraction of it could decide whether they’d sell it or keep it. Bitcoin started being used as a way of payments in 2009. In fact, someone actually purchased 2 Pizzas from Papa John’s for 10,000 BTC. In October 5th – the first course towards exchange dollar was published : 1 USD for 1,309,03 BTC. The enthusiasts set the price according to how much electrical power would you need to mine 1 BTC.
In 2010, the price increased 10 times in ten days – from $0.008 USD to $0.08 USD per Bitcoin. On November 6th 2010, Bitcoin share capital reaches 1 million USD. The exchange rate was according to the mtGox one – $0.50 USD per BTC.
2011 was another great year for Bitcoin. It was a year when the first video about it – What is Bitcoin – went viral. This brought more people interested and on June 2nd 2011 – 1 BTC would cost $10 USD. More and more people found out about it and in 2012 – BitPay reported having over 1,000 merchants accepting Bitcoin.
In 2013, the Bitcoin market capitalization was over 1 Billion USD. An exchange rate of 100 USD to 1 BTC was noted on April 1st. Moreover, it increased 10 times in 2013 in just a few months. In November – 1 BTC was evaluated at $1000 and was accepted by the giant game creator – Zynga.
Between 2014 and 2017 – Bitcoin tried to get back to his old glory, but failed. Due to the mtGox hack, the credibility of Bitcoin and the adoption was massive affected. Among the most notable news in 2015 – Over 160,000 merchants were accepting Bitcoin at that time. Steam also started to accept BTC as a payment option in April 2016 and in September 2016 – there were 771 Bitcoin ATMs Worldwide.
And then – we all know what Bitcoin happen in 2017. It first broke the $1,000 price again in January and by June the price was $3,000. In September, the price was $5,000. In November 30th, the price exceeded $10,000 and then a record of almost $20,000 was reached on 18th December.
But 2018 wasn’t such a great year for it in terms of profit & price. The cryptocurrency dropped until a low point of ~$3,000 – loosing almost 85% of its value. Like Gold and other precious metals or traded good – Bitcoin had a massive correction.
A correction that wasn’t correlated with events, as 2018 had mostly positive news about Bitcoin – except Facebook banning advertising cryptocurrnecies or services related to that and Google and Twitter following them a few months later.
It is evident that Gold comes with physical properties, but Bitcoin is not tangible. We have no physical form of Bitcoin. However, the two assets share some similarities. Bitcoin and gold play the same role in financial circles. They are considered safe with speculative values.
Looking at the graph from 2013, it took Bitcoin 4 years to reach its all time high again in 2017. Gold on the other hand, reached its all time high of $21,000+ in 2006. Gold needed 26 years to recover its price. Now, that’s not mostly determined by its usefulness or on market factor – but mostly because gold wasn’t so easy to buy before the internet era. As we can see, the gold evolution has a massive growth since the internet was invented. Gold went from under $10,000 USD per kg to over $50,000 in 10 years.
Bitcoin needed one year to go from $1,000 to $20,000. And same as gold – it had a massive correction – losing more than 80% of its value from the all time high. There are massive similarities between the two graphs. Each of them reached an all time high and lost more than half its value over the years. And both of them had another all time high since then. Gold had it in 2011 and Bitcoin in 2017.
In terms of ease of buying gold and bitcoin – both are easy to purchase right now due to the access offered by the Internet. Since 2011, gold has been fluctuating yearly with 5-10%. Bitcoin on the other hand continued to decrease over 2018 and its now traded between $3,000 and $4,000. No one knows when it will bounce back to a value of at least over $10,000 – but the analysts believes that in a matter of years Bitcoin could be more valuable than a kg of gold.
We need to take into consideration that purchasing Bitcoin is easier than purchasing gold. And unlike gold, Bitcoin can be used to purchase goods, services and many other things – as it now have a wider adoption as a payment method than 10 years ago. And the adoption is set to increase. More and more businesses that appear started accepting cryptocurrencies to increase their customer range.
Both of them can be seen as a way to store your value on a long term period. If you’d have purchased Bitcoin 10 year ago – you’d probably be a millionaire right now even with only $1,000 invested in it. For Gold, you would have won around 30-40% over the time. Which is enough to keep your value safe from inflationary currencies
Another important factor, Gold is chemically impossible to reproduce. Bitcoin is mathematically impossible to reproduce. Each of them have a limited supply and cannot be counterfeit.
With some striking similarities, Bitcoin and Gold differ in various ways.The differences between the two are what many looks at to determine if it’s worthwhile investing in either asset or not.
Gold’s role in transactions has changed over the years. Despite having a rich history, gold does not match up to the value of cryptocurrencies in this digital economy. Gold was a vital trade tool in ancient days.
However, in modern times, gold has to be liquidated before being deployed in any transaction. This process is limiting especially in regards to mass adoption.
This is not the case with Bitcoin. Bitcoin can be used to sell or buy anything provided that merchants enable payments in cryptocurrencies. No need for liquidated Bitcoin for transactions to proceed. Many cryptocurrency enthusiasts are optimistic that the value and popularity of Bitcoin will increase in the coming years as part of mainstream adoption.
One of the risk factors associated with the cryptocurrency market is volatility, and to some extent, gold might appear to have some advantage over Bitcoin. However, Bitcoin has an advantage in terms of inflations. Bitcoin’s supply nature has removed any fear of inflationary practices. With Bitcoin, there is no chance of overproduction because the supply is fixed.
It is open that Bitcoin is a riskier digital currency when compared to gold. Bitcoin is affected by strict regulations and other adverse developments from authorities. We have jurisdictions that have declared total war on Bitcoin. Even though Bitcoin enables cross border payments, its value can significantly decline if authorities decide to ban it.
However, it is worth noting that gold is also affected by a drop in value. In mid-2018 for example, the value of gold dropped due to a number a factors. In most cases, the value of gold usually plumbs when the US dollar gains strength.
As seen above, Bitcoin has some chances when it comes to competing with gold in terms of stability and risk. However, gold has the upper hand because it has maintained stability for centuries.
In the commercial world, both Bitcoin and gold make a significant contribution due to unique features.
In this case, both assets are probably worth investing into. But we recommend to speak with a financial adviser before taking any decision.
However, you might choose to allocate your money to one asset, but is advisable to split your funds between the two.
This is a less risky investment plan. Although Bitcoin investment is the riskiest choice, it can bring handsome returns over time.
Image source: yahoo finance
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