The original cryptocurrency Bitcoin (BTC) – digitally mined and Gold – mined from the ground, are two different lucrative investments, which share a great deal in common and most people massively invest to generate profits. However, precious metals and digital currencies are different assets and serve different drives in an investor’s portfolio, and it is very important to know these differences. They also possess some small similarities.
BTC and other altcoins have got a positive money flow since they are digitally mined and every block made increases their monetary base. For instance, for BTC $9 million of new (fresh) money has to flow in daily in order to match new supply, however, it is not direct due to the fact that miners can hold on their Bitcoin, yet for the price to skyrocket, less money has to flow in daily. Since demand and supply are what determines the price in the market, over $3.3 billion has to enter into BTC to trigger its price upward.
According to the scale of the modern markets, Gold production is around $140 billion, and that is the total amount of fiat currency which needs to enter the system in order to maintain its price near $1,300 an ounce. The market cap (MC) is around $5 trillion and Bitcoin is about $0.096 trillion.
Gold has served a big role in various portfolios, and Bitcoin is becoming a major innovation to complement and/or replace cash or precious metals in several applications. Although the global market seems more open resorting to the use and adoption of cryptocurrencies, other alternatives are not going anywhere – in other words, all the three are here to stay. Let us look at the unique features of each and where they fit best in a portfolio.
Gold: is difficult to counterfeit, so experts have a variety of means to track and verify the authenticity of bars and coins; it is easy to ‘coin’ and last forever unlike cockle shells; and no one makes it – it was created naturally unlike cryptocurrencies.
The physical properties are what have made it a more unique ideal form of coinage. And it has been an accepted and reliable form of storing wealth both by governments and individuals, for centuries. Actually, many governments, insurance companies and financial institutions, have been storing a portion of their wealth in Gold especially during the time of political turmoil.
Bitcoin: is limited; divisible, democratic by nature; and counterfeit-impervious. Bitcoin enables people to make transactions to each other with the help of the internet, and they are fraud-free, and they are also trusted by a large population.
Bitcoin uses cryptography to guarantee coins can’t be counterfeited. According to the original 2008 whitepaper of Bitcoin, its author Satoshi Nakamoto, wrote:
“A purely peer-to-peer (P2P) version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”
The use of cryptography by BTC has some side effects, for example, users tend to forget their private keys (passwords). Since a user can’t withdraw Bitcoin without a correct private key, they end up losing their cryptocurrency hence making a lot of losses. There are some instances where the owners of the crypto exchanges die without revealing the private keys of either hot or cold storages of their exchange, a good example is that of a Canadian-based QuadrigaCX owner Gerry Cotton who locked over $140 million worth in digital currency.
More market aspects that can help us differentiate, ascertain and further appreciate Bitcoin and Gold potential features are provided in the table below, according to the report by GoldSilver.
The leading crypto by market cap, BTC, is a more volatile asset than Gold, according to the chart below. BTC has to find a variety of commercial uses as well as attracting vast buy-and-hold-minded potential investors to minimize its level of volatility and become more stable just like precious metals. Gold is a natural pair trade and is more stable compared to fiat (traditional) currencies and other digital coins. Furthermore, it is evident that Gold-backed cryptocurrency exchanges provide safe haven for digital currency investors, as Coinidol recently reported.
All in all, both options are with no doubt significant investments which have caused massive attention as safe-haven assets. They also have some small differences, for instance, gold is a physical asset (product) while Bitcoin is completely electronic (digital).
Nevertheless, these two assets also carry certain similarities, for instance, they are all speculative investments – their prices are not based on key rudimentary fundamentals such as revenue, interest or incomes payments.
Investors and fresh analysts are urged to first make thorough due diligence before buying or speculation on either option. Investors who don’t fear making risks should however invest money (funds) they can afford to lose - that will not cause them problems or affect them negatively.