Bitcoin is commonly referred to as the “digital gold,” but how well does it stack up against the oldest asset known when it comes to long-term investment?
The sky-rocketing inflation and dire-looking global economy have made financial analysts recommend that investors turn to gold as a method of hedging against high volatility and decline in the value of the US dollar. However, crypto traders have often referred to Bitcoin as the “digital gold,” bringing about one big question, “is BTC a better option than gold?”
Here is a closer look at why crypto enthusiasts give it thumbs up to gold for investment.
Bitcoin is a Good Option for Value Retention
One of the primary reasons why investors are buying both Bitcoin and gold is that they hold their value well in times of economic uncertainties.
Gold has been proven over the years as a good method of holding wealth, but we have to say that it does not always maintain value. Take the example of a person who bought gold back in 2011. He would have had to wait until around July 2020 to get into the green. Again this would only happen if he manages to wait over such an extended period.
Let’s contrast that with Bitcoin. Since its inception, Bitcoin has never taken over 3-4 years before its price regains and surpasses its all-time high. This suggests that BTC might be a better option as a long-term store of value.
Can Bitcoin Be a More Reliable Inflation Hedge?
Historically, gold is considered a reliable hedge against inflation because its price tends to follow that of the cost of living. However, a closer look at the price movement of BTC against that of gold reveals an interesting picture. While gold has gained 21.84% over the last two years, the price of Bitcoin has jumped by 311%.
At a time when the overall cost of living is taking an upward trend faster than people are able to handle, selecting an asset that can increase wealth as opposed to maintaining it is an awesome idea. Although the Bitcoin price has declined significantly in 2022, it has yielded more significant upsides to investors with its multi-year time horizon.
Bitcoin (BTC) is Scarce and Deflationary
Financial experts and investors are quick to note the scarcity and supply-related constraints of gold because of the declining production. For example, it can take 5-10 years for a new mine to reach production, implying that a rapid price increase is unlikely.
Despite this, there are still approximately 50,000 metric tons of gold on the ground. If miners were incentivized by better prices, they would focus on extracting and selling to optimize returns. This could raise the supply and drag the price down.
On the other hand, Bitcoin only has a fixed supply of 21 million that will ever be produced, and the rate is also known. The decentralized and public nature of the Bitcoin blockchain means that it is possible to verify each coin.
However, validating gold is very difficult, implying that knowing the actual supply might never be possible. From this argument, Bitcoin wins the debate on scarcity. It is the hardest type of money to be created by human beings to date.
