Is Bitcoin A Better Store Of Value Than Gold? – Forbes

(Disclosure: Author holds an investment in bitcoin.)

There have been a lot of analogies over the years to bitcoin being a sort of digital gold. But how does bitcoin actually compare to gold as a storage unit of value? Can it protect against the risk of inflation the way gold does? Lets compare bitcoin and gold and see how they stack up as wealth preservation tools.

Trust In Bitcoin Vs. Gold

An asset cannot be used as a way to store wealth if the majority of people dont agree it is valuable and believe it will remain valuable in the future. This is one area where gold has a clear advantage. Whether it takes the form of coins, jewelry, art or something else, someone in 2019 B.C. would be just as likely to agree that gold is valuable as someone in A.D. 2019.

Bitcoin, because it is so new, doesnt have this advantage. Its only been around a decade. Its going to take more time for bitcoin to prove itself as a long-term tool for storing wealth.

Portability

Here is one area where bitcoin is the clear winner. Bitcoin is a nonphysical asset, and can be sent and received from anywhere with an internet connection. It also operates entirely outside the banking system, so it is easy and fast to send and receive payments across borders.

Gold must be physically stored somewhere, whether in a personal safe or with a company in its vaults. If you dont hold the gold yourself, you cant access it at will, and if you do, it doesnt necessarily mean you can move it around easily. Try bringing several pounds of gold onto an airplane without attracting attention and suspicion at the airport.

Furthermore, some governments throughout history have attempted to ban or confiscate privately owned gold (it was actually illegalfor private citizens to own and hold gold for 41 years in the United States).

It is much less likely a government could successfully block access to bitcoin, as doing so would require blocking access to the internet as a whole. China has attempted to block access to bitcoin several times over the past decade, and even with its great internet firewall, it has been unable to make a meaningful impact.

Barrier To Entry

Gold stands at about $1,500 per ounce at the time of this writing. So if you want to buy a 1oz coin, thats the minimum youd pay. You can buy bars in smaller sizes, but you can only shrink a physical asset so much.

One bitcoin is around $8,100 but remember, you do not need to buy a whole bitcoin to get exposure. Bitcoin is divisible by 100 million into the smallest possible unit, the Satoshi, or sat. If you wanted to get started with only a couple dollars investing in bitcoin, you could do that. Bitcoin (and cryptocurrencies in general) have a much lower barrier to entry for people who dont have a lot of money to throw around.

Protection Against Inflation

One of the most popular reasons for buying gold is to hedge against inflation. Some people fear the dollar, or whatever fiat currency they are holding, will experience a decline in value in the future. So, they convert it to gold to help protect their wealth against inflationary changes.

Both bitcoin and gold can be used for this purpose, though bitcoins price volatility can make people uncomfortable. No matter which you prefer, there is no denying the price of gold does not fluctuate nearly as much as any non-stablecoin digital currency.

Growth Potential

Over the past 20 years, gold has risen from around $430 per ounce at the end of 1999 to about $1,500 today. If you bought it then, you basically tripled your money. Thats certainly nothing to complain about.

Bitcoin has experienced unbelievable growth. When it first appeared in 2009, it was worth fractions of a penny, but steadily increased in value relative to the U.S. dollar over time. With each halving (when the algorithmically determined supply of new bitcoins being generated is cut in half), the price of bitcoin exploded a year or so afterward. Between 2015 and 2017, for instance, bitcoin experienced nearly 9,000% growth when it reached its all-time high of nearly $20,000. While there was a sharp correction after each all-time high, the new low was always significantly higher than before. If this pattern holds with the next halving, the short- to medium-term growth potential of bitcoin could be much higher than gold.

Functionality

One of the core arguments in favor of gold is that it is a physical commodity and you can actually do things with it. Gold is used for jewelry, electronics, dentistry, aerospace equipment and more. It has real, tangible utility besides money. There is a certain base level functional demand that contributes to the value of gold, but the majority of the demand for gold is based on the speculative value.

Bitcoin, of course, is a purely digital creation and really cant serve any purpose besides being a digital, nonphysical storage unit of value and medium of exchange. Bitcoin has a certain base level functional demand for people and businesses using it as a payments network, but the majority of the demand for bitcoin is also speculative.

Risk Vs. Mobility

This is a polarizing topic among financial experts. Some passionately argue in favor of gold and dismiss cryptocurrency as not real, while crypto proponents call the naysayers goldbugs who refuse to have an open mind.

Im not here to give financial advice, but I will say this: Gold has proven itself over the millennia, and I believe bitcoin is about the closest thing to a frictionless, portable, nonphysical form of gold that currently exists. Ultimately, what matters is your own tolerance for risk and how mobile you need your wealth to be.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

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Is Bitcoin A Better Store Of Value Than Gold? - Forbes