Bitcoin is similar to Gold in many respects especially because both are scarce, liquid and regarded as reserve assets. However, many analysts and economist have always analyzed the two to determine which is a better store of value.
Gold has features that make it a good risk hedge usually because it is not correlated to other assets like fiat or stock. It also performs well as a safe haven for investors in cases of widespread corrections, although its value may remain static.
Furthermore, investors have always turned to gold as a hedge against political risks and stock volatility. However, when the pandemic struck in 2020 and the economic crisis set in, investors started paying attention to Bitcoin as a reserve asset.
The Rise of Bitcoin as Store of Value
Over the past year, the United States has increased its monetary base by 53% which has turned many investors to Bitcoin to hedge inflation. This is because many consider the flagship cryptocurrency as superior to gold in terms of value storage. For instance, interest in cryptocurrency surged in Turkey following the crash of its currency.
The adoption of Bitcoin by the likes of MicroStrategy, Tesla, Visa has also improved the mainstream’s outlook on Bitcoin. Therefore, we will discuss some keys attributes that reveal why Bitcoin is better than gold as a store of value.
A good store of value should be divisible into smaller units as this allows for precise value transfer. Divisibility is not one of gold’s draw. It is difficult to transfer small units of gold compared to Bitcoin which can be divided up to the 8th decimal (0.000 000 01).
An asset becomes even more credible as a store of value if it has been observed to be valuable for a long period. Gold has been around for a very long time and that is why some investors still prefer it to Bitcoin.
However, a Bloomberg’s report shows that there is now a “shifting global wave” from gold to Bitcoin as a reserve asset. This lends more credence to cryptocurrency as a store of value, especially at a time when there are fears of inflation.
Goldman Sachs CEO, David Solomon said in an interview that “Bitcoin is on an inevitable path to have a higher market cap than Gold”. Bloomberg’s Mike McGlone also noted that Bitcoin’s adoption “as a global reserve asset has crossed the mainstream threshold.” As a result, he added that Bitcoin price could hit $400K before the year ends.
Bitcoin’s performance over the very short period of its existence compared to gold has been amazing. Although contrasting Bitcoin’s market cap of about 1 trillion to gold, it is still about one-tenth of gold’s market cap.
However, Compound Capital Advisor CEO, Charlie Bilello, revealed that Bitcoin outperformed all asset classes over the last ten years. In summary, Bitcoin’s average annualized return is 230.6% compared to 0.5% by gold.
Ark Invest analyst Yassine Elmandjra said that Bitcoin will soon beat gold’s $10 trillion market cap.
In summary, whether or not Bitcoin is a more preferable reserve asset than gold is left to the investor. One key factor to be aware of as an investor is the extreme volatility of Bitcoin, which is why many analysts are worried.
However, Bitcoin’s performance cannot simply be overlooked as it appears to be more than a bubble. Also, Bitcoin remains at the heart of institutions as many continue to expand their crypto services.