Bitcoin is barely a decade in existence while Gold has been the go-to commodity investment in times of turmoil throughout human history. No matter what the New Year brings, the cryptocurrency will outperform the ancient metal in investment portfolios again in 2021. Here’s why.
Both Gold and Bitcoin are seen as stores of value, as protection from political and economic turmoil, and as safe havens from the unbridled expansion and subsequent devaluation of major fiat currencies like the US dollar. Both will continue to be used by investors to preserve least a portion of their wealth. But Bitcoin has some inherent advantages over gold, advantages unique to today’s fast-paced electronic world that will enable Bitcoin outperform Gold for a long time to come.
Investment demand for both Gold and Bitcoin comes from people wanting a unique asset that is: (1) limited in supply; (2) easily bought and sold, (3) widely accepted as a universal medium of exchange; and, perhaps most importantly, (4) perceived as a stable store of wealth when other investments are threatened by economic and political whirlwinds.
Gold and Bitcoin meet the above four criteria. Investors will buy both for portfolio protection and diversification, but Bitcoin edges out Gold in each category. It is significant that Bitcoin’s advantages are nascent and accelerating, which is why Bitcoin will continue to outperform Gold in 2021 and beyond, perhaps to a degree as yet unimagined by most investors whose last name isn’t Winklevoss.
A quick Gold versus Bitcoin comparison is revealing:
Gold is in limited supply, but that’s because Gold production is a difficult, hugely capital and labor intensive endeavor with an ultra-long lead time, usually restricted to specific, remote geographic locales. As such, demand for Gold can outpace supply, but supply will catch up eventually; it’s likely it will take centuries, if not millennia, to exhaust the supply of gold on earth. And if you believe the true futurists, we’ll eventually be mining/retrieving gold from asteroids and other planets.
Like Gold, Bitcoin has to be mined, but the capital and human resources required are miniscule compared to those of Gold. Here’s the kicker: Bitcoin’s supply is truly limited; there are 21 million Bitcoins, all of which will likely be mined within about two decades, and then it’s done, no more Bitcoins. Boom. Advantage Bitcoin.
Easily Bought And Sold
It’s easy to buy Gold. Bars, nuggets, coins, jewelry, and even gold dust can all be had with a little bit of physical effort, and one can always gain exposure to the price of gold through an investment fund or ETF. Easy right? Sort of. It takes effort to physically buy gold, and it takes an investment account to buy a Gold fund or ETF.
Given the above, let’s assume, politely of course, that one needs to be of a certain age and maturity to acquire some gold. But all anyone needs to buy Bitcoin is an App and a bank account. Every young person with a phone can buy Bitcoin with ease, and many do. Older folks are less tech savvy, but they are learning. And younger folks are getting older and opening investment accounts through which they will be able to buy Bitcoin funds, and eventually Bitcoin ETFs. Bottom line: the ways to buy Gold are mature, efficient, and stagnant; the ways to buy Bitcoin are expanding rapidly in both methodology, size, and number of participants. Again, advantage Bitcoin.
Widely Accepted As A Medium Of Exchange
OK, it’s true that Gold is widely accepted as a medium of exchange, but unless you’ve stepped out of a time machine and are carrying gold coins, nuggets, and a bag of gold dust in your handbag or vest pocket (near your gold-chained pocket-watch), and can find a merchant to accept those things as payment, gold is pretty useless as a currency.
We all shop and buy things using our electronic devices, and Bitcoin is accessed through – you guessed it – our electronic devices. Bitcoin’s use as an actual currency for purchases is just getting started, the growth potential in this area is simply astronomical. Advantage Bitcoin, bigtime.
Perceived As A Stable Store Of Wealth
Gold has always been perceived as a stable store of wealth; people feel confident it will serve them well in times of turmoil. True enough, but really, where will you keep it physically, how will you carry it around, and how will you transact everyday business with Gold? Unless you believe the lights are going out, all electronic transactions will disappear, and we will all be living life like we’re in a 1980’s apocalypse movie, cryptocurrency is the way to go. Bitcoin is pretty unique amongst the cryptos – it’s first, biggest, finite, and completely beyond the reach and influence of government authorities.
This latter point is important. Bitcoin and Gold are true havens from the ever weakening fiat currency fiasco unfolding in the COVID and soon to be post-pandemic world, a world in which governments will be scrambling for more revenue and ways to buttress their out of control central bank balance sheets. None of what’s coming down the pike makes for the perception of stable traditional financial markets, diversification into non-correlated assets that are not linked to any single fiat currency are going to be in high demand. Gold fits the bill, but Bitcoin fits the future better.
Bitcoin wins. Those that own it will have a Happy New Year.
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