Investment is crucial for attaining financial independence and growing your money. Investors tend to hold a portion of their investment as capital preservation through precious metals like gold to hedge against market fluctuation. It is a well-proven technique and has helped many during a downward economic trend like the latest covid-19 recession.
But here is my question: is gold still the best option for capital preservation?Most of you may say yes, as gold holds value over long periods.However, some of the biggest names in the market, like Goldman Sachs predicted that Bitcoin may snatch the market share away from gold in 2022.The main advantage of gold is the store of value it provides to the investor and the hedge against inflation in the market.
But as of now, Cryptocurrencies also share 20% store of value in the market.Bitcoin had 700 billion dollars as market capitalization in less than two decades of its launch in 2009. On comparing to 2.6 trillion worth of gold as an investment that has been in the market since time immemorial, Bitcoin will most likely acquire a chunk over time. In this article, I would like to share three reasons why Bitcoin can acquire the market share of gold, along with a comparison of the two investment vehicles at the end of the article.
You can check out this video from CNBC, where George milling Stanley, chief gold strategist at State street's SPDR ETFsand CEO of Graniteshares - Will Rhind, discusses some of the most crucial points on why the gold price is not high despite inflation?"
1)Bitcoin's increasing global acceptance and popularity.
Bitcoins' popularity is increasing every day. It is being adopted globally in different countries. Like gold, Bitcoin also has a wide range of acceptance and lesser availability, and this single factor sets it apart from other cryptocurrencies.
Being a scarce monetary good makes it superior to other cryptos equating it to gold. From the Bitcoin launch in 2009, this decentralized technology-based cryptocurrency has attracted investments and is seen as a new era in finance and investing.
79 million people have created unique Bitcoin wallets on blockchain.com.In each passing day, there are about 270000 confirmed transactions of Bitcoins. 89% of American adults are aware of Bitcoins, and literally, 1.6 million people globally use cryptocurrencies.46 million Americans constituting 22% of the total population, have a share of Bitcoin.
Financial analysts predict that the global blockchain market will grow by 39.17 billion US dollars by 2025.Countries like the United States have started guiding Bitcoins since 2013. Likewise, European Union has recognized Bitcoin and other cryptocurrencies as crypto assets, also Canada has a bitcoin-friendly attitude and treats it as a commodity for income tax gains.
The Australian taxation office also recognized Bitcoin as a financial asset, and El Salvador has declared Bitcoin to be a legal tender in June 2021.Rio de Janeiro plans to invest 1% of the country's treasuries in Bitcoin.Other countries like Denmark, France, Germany, Japan also has a friendly notion towards Bitcoins.
In the case of digital assets and cryptocurrencies, India has taken a diplomatic stand. The Indian government has taxed the income generated through cryptocurrencies but has not recognized them as legal assets. Countries like Egypt, Iraq, Qatar, Morocco, and 42 others have implicitly banned digital currencies.You can also read Five major updates in cryptocurrencies and Bitcoins.
Within less than two decades of their introduction, Cryptocurrencies and Bitcoins have had an impact on the world,Gold has a major acceptance across the world with some regulations, you cannot find a country where gold is illegal. But, I feel Bitcoins may equate it to a greater extent in the coming time.
2)Bitcoin is a unique asset with a store of value.
The store of value in cryptocurrencies' relevance has been a table for debate for different portfolio managers. Some of the biggest names on Wall Street, like Mike Novogratz have answered will Bitcoins take over gold? He supports the former and also calls it digital gold.
I do think bitcoins are on an inevitable path to having the same market cap and then a higher market cap as gold - Novogratz told to CNBC squawk box.
But again, this topic is debatable. On the contrary to what novagard said, Will Rhind, CEO of Graniteshares, said it is very soon to assume that Bitcoins will replace gold. Now bitcoins may be sharing some of the capital away from gold, but it's too early to say that it will act as a successful hedge against inflation. Peter Schiff has also supported Will Rhind. According to him, Bitcoin or Fiat currency can replace paper currency, but it cannot replace gold.
We could expect Bitcoin to be a lot higher in 5 to 10 years from now-Chris Kuiper, director of research at Fidelity digital assets.
One major thing I would like to highlight is the covid-19 pandemic situation that had a toll on the world economy in 2020.During this period, the stocks fell, whereas Bitcoin's value didn't. By April 2021, Bitcoins' price hit $61000. Most investors used Bitcoin to buy and hold until its price maintained its value after the pandemic.
On the other hand, the pandemic has drastically attracted investment towards gold. Investors follow traditional strategies fueled their money into gold, increasing its price. But after the pandemic, as soon as the economy recovered, the gold price dropped, and Bitcoin prices stabilized.
3)Bitcoins domination in the market
As I previously mentioned, Bitcoins have a market capitalization of around 700 million dollars net worth.Bitcoins and other cryptocurrencies faced a new low in the year 2022. Last week, Bitcoin hit $45000 since it's low. At the beginning of 2022, Bitcoin prices dropped 50%.Surging inflation and the slow recovery of the job market are a few of the primary reasons. However, the market seems to be growing, and the analysts can make out some of the trends.
Goldman Sachs has projected a hypothetical scenario, that is, if Bitcoin procures a 50% share of this market, its price would reach just over $100,000.It proves Bitcoin has a bigger market than other cryptocurrencies and has a good store of value.
Bitcoin may have applications beyond simply a store of value, and digital asset markets are much bigger than Bitcoin.But, we think that comparing its market capitalization to gold can help put parameters on possible outcomes for becoming returns -Zach pandl
Bitcoin versus gold, a comparative study
Various factors like global acceptance, store of value, and dominating the market synchronizes Bitcoin with gold. Well, Is this enough to say that Bitcoin will take over gold? Not really.Let's discuss other factors to get a clear picture.
Despite being accepted in most countries, Bitcoin regulations are drastically different from one country to another. on the other hand, the system for grading, packing, and tracking gold is flawless. It becomes hard to steal or produce fake gold. One cannot easily carry gold across international borders without any permission. Investment in gold also can be made possible only through registered dealers and brokers.
Even Bitcoins are difficult to steal and fake and generally legal to use across international borders. But when compared to gold, the regulatory infrastructure is not up to the mark.When it comes to utility, gold is better. It has vivid applications in multiple fields. Bitcoin has limited utility and is restricted to the digital world.
Liquidity is another important aspect. Bitcoin offers the user more has more liquidity. But in some cases, this may differ. If you own several hundred Bitcoins, you cannot liquidate them in one go, and most of the platforms have a redeemable limit fixed. These restrictions are not present in the case of gold; it allows you to liquidate easily and relocate your portfolio with respect to market fluctuations.
One of the drawbacks of Bitcoins is their volatility. A tweet or a public statement can affect Bitcoins' prices. It is affected by media effects , and people emotions. Simple tweets from famous personalities can alter the prices.For example, whenever Elon Musk tweets in support of dogecoin, its price increases. But this never occur in gold. Other facts like Bitcoin being rare like gold, can be a similarity.
I highly recommend watching this video from Stansberry research, a YouTube channel one of the best subscription-based financial information publishers. In this debate Michael Saylor , founder of MicroStrategy and Frank guistra has discussed all the ins and outs regarding this issue. most of the questions are answred by these two experts.
Another common ground is gold-backed cryptocurrencies. These are gold-backed derivatives whose values derive from the price of gold. The gold backing helps to tie a derivative asset to a tangible asset. It prevents excessive price fluctuations. In this scenario, a single unit of crypto is usually equivalent to a single unit of gold. Some of the tokens are back within the 1:1 ratio.
An investor can invest in gold-backed cryptocurrencies that hedge against volatility. But before investing, make sure to verify the backing claims.You can check out top gold-backed cryptocurrencies, for more insights. For your information: Bitcoins are not backed by gold.
After discussing all the reasons and the similarities and differences between Bitcoin and gold, it all comes down to a single question What are the advantages of Bitcoin investment over gold?, well bitcoins can sometimes provide more gains due to its volatile nature, again this may act as a double edged sword. However with major changes occuring, it is safe to say that in near future Bitcoins may acquire more of Gold's market share.
When it comes to investment in cryptocurrency, follow this single golden rule- invest what you are willing to lose. Bitcoins and other cryptocurrencies are highly volatile. Gold prices may also fluctuate. Assess your risk appetite, analyze your income, and complete your research before investing. If you ask my personal opinion if bitcoins will acquire the market share of gold, then I will go with Will Rhind. Bitcoins and other cryptocurrencies are volatile, and we need more time to declare whether they will substitute gold or not.