While Bitcoin might currently be considered a novel way of storing value, precious metals — specifically gold — have remained a fungible, private, and stable method of storing value for thousands of years. In today's post, we answer the question that the next generation of investors might be asking: can Bitcoin compete with Gold as a store of value?
One of the primary use cases of Bitcoin, apart from the transfer of value between individuals without the interference of institutional banking platforms is as a store of value. Bitcoin holds a distinct advantage over traditional fiat currencies in that it is a deflationary asset — rather than lose value, the limited number of Bitcoin that will ever exist makes Bitcoin, like gold, immune to inflation.
Bitcoin, however, is currently highly volatile, and exists within an evolving regulatory environment that obscures the long-term implications of holding it as a means of storing value. Gold, in contrast, has remained in a stable regulatory ecosystem and was, until the early 1970s, a cornerstone of the international fiat currency system.
Many cryptocurrency traders and investors exit positions in the cryptocurrency market by either “cashing out” Bitcoin for fiat currency via a wallet or exchange, or by trading bitcoin for “stablecoins” that are pegged to fiat currencies.
While these practices allow traders and investors to hedge against the volatility of the crypto market, they still rely on fiat currency. Gold on the other hand offers cryptocurrency traders a stable means of storing value outside of the cryptocurrency market without relying on the banking system.
Why Buy Gold?
The price of gold has risen approximately 100% since the Bitcoin network was created in January 2009
The primary function of gold in most investment portfolios is a hedge against volatile markets. The value of gold is generally stable, providing traders and investors with a reliable asset that can be purchased and held in case of a market crash. The 2008 global financial crisis, for example, saw gold prices increase by 5.5%, a significant shift for the precious metal, due to large liquidity and hedging needs.
Gold possesses several qualities that make it ideal for cryptocurrency traders seeking to establish a stable store of value outside of the cryptocurrency market: Unlike fiat currency, there is a finite amount of gold on the planet — it’s not possible for a country to mint any more than already exists.
Just like bitcoin, gold is also impossible to counterfeit. The unique chemically inert, non-allergenic, and ductile properties of gold make it a highly valuable precious metal, and one that is used in hundreds of industries worldwide.
While gold may not be ideal for traders seeking to profit from arbitrage or price volatility, it serves a critical function as a stable asset that can be used by traders as a secure, reliable long term method of storing value.
Buying and Storing Gold
Unlike bitcoin, gold is anchored to the real world with a physical presence. This means unless you have storage facilities—like a home vault, for example—you are likely to need to rely on a third party to store your metal.
Options for buying and selling gold are typically more limited than with bitcoin. Although you can theoretically sell to high-street shops or online broker-dealers at any time, these sources of liquidity tend to dry up during times of high demand. Unless you buy gold from a friend, you are also unlikely to be able to purchase gold anonymously, which gives bitcoin an advantage to the privacy-conscious.
If you are interested in buying gold using bitcoin, you can do so using the original bitcoin-gold exchange Vaultoro.
Why Buy Bitcoin?
Bitcoin holds a major advantage over gold as a bearer instrument — unlike gold, bitcoin can function as a currency, and there are a growing number of businesses that accept bitcoin as a payment method. While it’s possible to purchase goods and services both online and physically with bitcoin, it’s generally not possible to purchase a coffee, for example, with gold.
Gold may also appear to be a highly stable asset, but on a grand scale, the price of gold demonstrates inflationary characteristics. Over the last 100 years, the annual supply of gold has increased by between 1 and 2 percent. In comparison, the total supply of bitcoin is fixed by code — there will never be any more bitcoin beyond 21 million individual coins.
Buying and Storing Bitcoin
Bitcoin has a unique advantage over gold as a store of value. As crypto pioneer Nick Szabo points out, Bitcoin (and other crypto assets) are the only assets that can be secured without the help of the government. While land, property, stocks, or gold bullion can be taken away by force, bitcoin does not exist in the physical world.
This means you can simply memorize your private key, perhaps in the form of a seed phrase of a few words, and then carry your bitcoin around in your memory.
If you were to buy your bitcoin anonymously using a peer-to-peer platform or a decentralized exchange, then nobody else would even know that you own the bitcoin in that particular wallet. Of course, while this approach might grant you 100% freedom, you also must bear 100% responsibility for the potential loss (or forgetting) of private keys.
Which Is the Best Store of Value?
Although bitcoin and gold both serve different functions, they also share many qualities. Bitcoin has been called digital gold and can be considered complementary to gold.
Perhaps the biggest advantage bitcoin has over gold, as pointed out by Satoshi himself, is that it cannot be debased or counterfeited. Ever since gold has been used as a store of value, cunning criminals have sought to falsify the element by mixing it with other metals. Most recently, these Chinese financial institutions found themselves in a pickle after discovering the loan they had given to a jeweler was secured by nothing other than gilded copper.
That being said, a lot of investors still prefer gold because of its proven track record of over 5,000 years as a store of value.
About the Author
Kieran Smith provides content strategy and copywriting services for cryptocurrency companies at Bitcopy.