Bitcoin and Gold are both having bull runs, but how similar are they?
Bitcoin is currently trading at a price of around $54,000, after enjoying a huge rally in 2020.
After almost $20 trillion in pandemic spending in the United States alone, inflation seems inevitable. What is more, some are arguing that there is a possible recession to be expected in due course. All of the above means that investors are looking to safeguard their money. One obvious way to achieve that would be to buy gold. How similar is gold to Bitcoin, then? Can Bitcoin be a “safe haven” in a way gold and other commodities are thought to be?
Below are the main factors that need to be analyzed in order to compare gold and Bitcoin.
1. Transparency, Safety, Legality
Gold has a long-standing and most trustworthy system for trading, weighing, and tracking. For anyone to steal it, or fake it, would be very difficult. Bitcoin is easy to trace, also. However, it is definitely less safe than gold. Exchanges can be subject to attacks and software problems; one example would be the famous Mt Gox exchange where a software malfunction allowed hackers to steal millions of dollars worth of Bitcoin.
2. Limited supply
Bitcoin has a limited supply of 21 million, this is how many Bitcoins will be in circulation at the peak. After the peak, there will not ever be more Bitcoin released, which does resemble gold in some ways.
Gold will most likely not run out as quickly as Bitcoin, but there are studies that show that global gold production may be in peril; it is bound to become economically unsustainable by the year 2050. This can be explained by a phenomenon where humans extracted all of the “easy gold”; and it is progressively becoming harder and harder to physically reach the resource.
Both gold and bitcoin have very liquid markets. Fiat money can be exchanged for them.
Price-wise, bitcoin is highly volatile — hence, the narrative about it being a “safe haven” may not be correct.
Gold is treated as a safe haven because historically when stock markets experience downturns gold price rises. In terms of historical events, one needs to only look as far as the 70s, when President Nixon ended the gold standard to the detriment of having a currency backed by the central bank’s control. The gold price went from US$35 per ounce in 1971 to US$850 in January of 1980. Perhaps, Bitcoin is following the same path as gold.
Bitcoin is currently trading at a price of around $54,000, after enjoying a huge rally in 2020. Investors are looking into it as a potential alternative to gold, which has historically been viewed as a safe haven from inflation and economic downturns. Despite the similarities between the two: Bitcoin and gold, it cannot yet be said that Bitcoin is “the next gold”. This is because of its price volatility.
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