Should you Buy Bitcoin or Gold?
The battle of new and old. Physical & digital
Good Monday morning everyone.
I dont know if you’ve heard, but bitcoin has been recently referred to as digital gold (recent as in the past five years). Now, that is quite a claim to make, and bitcoin can be difficult for even the smartest of us to wrap our heads around. So, Today I want to break down the differences between gold and bitcoin and see which one is really the top dog and what is a better investment for you.
We have five categories we are going to reflect across and then come together at the end to decide which one better fits your investing style.
These are the categories:
Utility (practical uses)Liquidity (how easy it is to buy & sell)Volitlity (how rapid the price moves )Regulations (restrictions & laws around purhcase)Public Sentiment (how people feel about these investments)
If you don’t know what bitcoin is, here’s a brief definition. (Yes, I know that it is more complex.
Bitcoin is a cryptocurrency, desgined to act as money and a form of payment outside the control of any one person group or indivudal.
Removing any need for third-party in financial transactions.
Bitcoin is rewarded to blockchain miners who verify the transactions.
It was created by an unknown person with the psydonym Statoshi Nakamoto in 2009 and it is the world largest crypto by market capitlization ( total value of all coins )
Let’s dive into the categories.
Utility
Gold has been around for a while, and many different uses allowed gold to store its value so well. For example, you can see gold in computer chips, jewelry, and fashion and use it as a currency. Of course, there are many other applications as well, but you can get the point.
There aren’t as many applications for bitcoin yet. It is currently used mainly as a digital currency and a store of value. But technologies are developing that could allow for borrowing and lending without the use of a third party, but it has yet to be seen.
Liquidity
Gold is actually a very liquid asset. It can be bought as shares on almost every exchange, and there are very few restrictions as far as being able to pull large amounts out ($50,000+). You can also buy physical gold, but I only would if you have a safe place for it.
Bitcoin can also be very liquid as well. But there are other times when it isn't. Big buy and sell orders can influence the market, and that is why there are such volatile swings. On Coinbase (one of the largest exchanges), the daily liquidation limit is $50,000 per day, so if that’s going to be a problem for you, that is definitely something to consider.
Volatility
This category will be easy for you to see the difference in volatility between bitcoin and gold.
In 2021 bitcoin started at $31,222 and rose to a high of $69,000, and ended the year at $46,211.
In the same year gold started at $1,943 per ounce, bottomed out at $1,683 and ended the year at $1,805
This isn’t to show you that bitcoin doubled in price in the same year. Instead, it is to illustrate how rapidly bitcoin’s price can move compared to gold.
Regulations
Gold has been around forever, and it is very hard to fake or steal. ( maybe easier to steal). In some countries, you can’t cross the border with gold without permission. When purchasing gold, it’s typically done through a brokerage or exchange.
Bitcoin is also incredibly hard to steal or fake, thanks to blockchain technology ( Blockchain is like a digital ledger for the public). It is legal in most countries to possess as well. But the anonymous nature of its creation makes it challenging to regulate.
Public Sentiment
The public’s emotions have less to do with the price of gold because of all the other physical ties that gold has in the real world. Such as electronics, jewelry, and all the other reasons I listed above. It allows gold to have more of a stable value and less violent price swings.
Bitcoin, on the other hand, is largely influenced by how people feel about it. If people are fearful and big sell orders come through, that could lead to other people selling and so on. On the other side, if people are greedy, prices can rise quite quickly.
Which is the better for you?
You’ll see this theme come up a lot in my writing, but it depends on the type of person you are and how much risk you’re willing to take.
While unlikely, bitcoin could go straight to $0, but since its creation in 2009, it has risen by 720,000,000%. Gold in the past century has gained 6,400%. This comparison is absolutely ridiculous because bitcoin has gained so much but keep in mind that it is vastly more skeptical of an investment than gold.
In my opinion, don’t throw your eggs in one basket. No one investment should be able to take you out of the market.
That’s not just coming from me; it’s loosely paraphrased from greats like Ray Dalio, Warren Buffet, and others.
I hope you enjoyed today’s article and were able to take something valuable away from it. This post is free, so the only thing I ask is that you share it with a friend if you feel like it. See you tomorrow, have a great day, and remember to live in the moment.