The emergence of 40-year high inflation indicators and a worsening global economy have led many financial analysts to recommend investing in gold to avoid volatility and a depreciating US dollar.
Over the years, traders have called Bitcoin is “digital gold,” but is it really a better investment than gold? Let's take a look at some common arguments investors make when praising gold investments and why Bitcoin maybe the long-term option is even better?
Ability to maintain value
One of the most popular reasons to buy both gold and Bitcoin that they have the ability to maintain their value through historically volatile economic times.
This is well-documented and undeniably gold offers some of the best asset protection in history, but it's not always perfect. The chart below shows that gold traders also suffered from prolonged pullbacks.
Gold Price | Source: TradingView
For example, a person who bought gold in September 2010 will have to wait until July 2021 to make a profit again and if they continue to hold, they will once again break even or lose money.
Bitcoin is a better hedge against inflation?
Historically, gold has been considered a good hedge against inflation because its price tends to increase with the cost of living.
However, a closer look at the chart of gold versus Bitcoin shows that gold has increased modestly by 21,84% over the past 2 years but the price of Bitcoin has increased by 311%.
In a world where the overall cost of living is rising faster than most people can handle, holding an asset that can weather escalation can actually increase its value. rather than maintaining it.
While the volatility and downtrend in 2022 has taken a significant toll, Bitcoin still offers greater benefits to investors over a multi-year time frame.
Bitcoin follows the golden footsteps in times of geopolitical uncertainty
Often referred to as a “crisis commodity,” gold is well known for its ability to maintain value in times of geopolitical uncertainty as people flock to invest in gold as world tensions rise.
“Gold is called the crisis metal so I think if we go into a recession again, gold will go up as a commodity,” Twitter user Scott Hempstead comment.
Unfortunately for those who live in conflict or unrest areas, carrying valuables is a risky proposition as residents could have their property confiscated or stolen.
Bitcoin offers a safer option in this situation as they can simply memorize the seed phrase and travel the world without fear of losing money. Once they reach their destination, they can restore the wallet and access the assets.
The digital nature of Bitcoin and the availability of many decentralized markets, peer-to-peer exchanges like LocalBitcoins offer a better opportunity to buy this cryptocurrency.
US Dollar continues to depreciate
The US dollar has become stronger in recent months, but the current situation looks to have changed. During times when the dollar's value fell relative to other currencies, investors flocked to gold and Bitcoin.
If other countries continue to move away from the US dollar-centric approach to more multipolarity, the amount of USD-denominated assets will decrease significantly, but those funds will not convert to the currency either. weaker.
Although gold has been a favored asset for millennia, it is not widely used or accepted in our modern digital society and most young generation youth have never Directly see the gold coin.
For these groups, Bitcoin is the more familiar option that can be integrated into people's digital lifestyles and requires no additional security or physical storage.
Bitcoin and Deflation
Many investors and financial experts point to the scarcity and limited supply of gold dwindling after years of production as reasons that make it a good investment.
It can take five to 10 years for a new mine to reach production, meaning that supply is unlikely to grow quickly, and central banks slowed down gold sales significantly in 2008.
However, it is estimated that there is still more than 50,000 tons of gold in the ground and miners will be excited to mine in case the price increases significantly.
“Gold will never reach the promised land of 'true scarcity'. The higher the price, the more it is mined, thus increasing the supply and decreasing the price,” Twitter user DeepSee-er tweets.
On the other hand, Bitcoin has a fixed supply of 21 million BTC to be produced and the level of release is programmed. The public nature of blockchain Bitcoin allows to know and verify the location of every coin.
There is no way to locate and authenticate all the gold reserves on the planet, which means that the true supply is never known. Therefore, Bitcoin definitely wins the scarcity debate and it is the most scarce form of money created by mankind to date.