In the last few years, comparisons between Bitcoin and gold have become more and more common. Everyone has a tale about the comparison, arguing that Bitcoin and gold are both commodities and should be invested in as such, to crypto-purists who insist that Bitcoin is a currency first and that it’s destined to usurp fiat currency as the global standard. Incidentally, many gold bugs believe their favorite yellow metal is bound to accomplish the same.
What are some of the main differences and similarities between Bitcoin and gold?
#1 Cryptocurrency is not Regulated as a Currency
Whether it’s because of their reluctance to accept a challenger to the national fiat currency or because it simplifies taxation regulations, most countries in the world treat Bitcoin as an asset rather than as a currency. Profits made from transactions in Bitcoin are considered capital gains and taxed the same way earnings made from selling stocks or gold might be.
For thousands of years gold was the foundation of national currencies, but today it’s deemed a commodity and an asset class.
#2 Both are Non-Inflationary Ways to Store Wealth
The biggest risk of holding cash is always inflation: that your money will slowly (or rapidly) lose its value. That’s why investments of any kind are preferable to keep all your money in cash. Otherwise, it just doesn’t grow. Even during a normal, healthy economy, keeping money in your bank account could mean losing 1 to 3% of its value every year.
Bitcoin and gold are both seen as alternatives for storing wealth. Gold is typically seen as a stable, ever-appreciating asset with some price volatility. Bitcoin has some extreme price volatility, and the market is only now learning how it works. However, economists believe the digital currency could become the store-of-value asset of choice in a more regulated future.
When it comes to comparing gold and Bitcoin investments, store-of-value may prove to be where the two are most competitive.
#3 Gold and Bitcoin are Both Limited
It may seem counter-intuitive that a digital currency – a digital asset that exists in the world as just a cryptogram – is scarce, but that’s one of the reasons Bitcoin has become so valuable. There is a hard cap on how many Bitcoins will ultimately exist in the world, with mining becoming algorithmically more challenging as time goes on. Miners need to put more resources to get fewer Bitcoin out, so they’ll stop unless Bitcoin prices make it profitable.
It’s a system intentionally designed to mimic the process of mining gold. The big difference is the gold rush: only higher Bitcoin prices can fuel increased mining activity. There will be no sudden discoveries of Bitcoin veins on the internet.
As an alternative asset class, Bitcoin is definitely worth exploring. If you already own gold and you want to branch out into other alternative assets, consider heading to a cryptocurrency exchange like Bitbuy to buy Bitcoin.
There are enough similarities that gold investors will be familiar with both the pros and cons of buying Bitcoin already. From price volatility to alternatives to fiat money, there are many reasons to buy Bitcoin.