Bitcoin is increasingly viewed by investors as a store of value. By "store of value" we mean an asset that maintains or increases its value over time, as opposed to FIAT money which is subject to inflation. Historically, the store of value par excellence has always been gold, but it seems that with the advent of Bitcoin, things are changing.
So let's try to analyze these two assets, to understand what their points in common are and the differences that characterize them.
Let's start by seeing the points in common: as mentioned above, these are assets that tend to increase their monetary value. This means that by buying a certain amount, it can act as a hedge against the inflation that weighs on our savings. But why does this happen? The main reason is due to their scarcity: being little available, in fact, they are subject to the trend of their demand. Therefore, the main characteristic that these assets have in common is their preciousness, which gives them their high value. Investors today have several financial tools available to create a hedge, but those wishing to buy gold have an alternative: Bitcoin.
How are Bitcoin and gold different? Here are some points where these assets have some small but important differences.
1. Scarcity
The first important difference is found in the maximum supply. In fact, there may be only 21 million Bitcoins in the world, not one more nor one less. This is due to the fact that Bitcoin can be "created" in limited quantities, thanks to the provisions of its code. On the contrary, gold is extracted from underground and its supply increases by 1.5% every year. It can be said, therefore, that Bitcoin is certainly quantifiable, while gold is accurately approximable.
2. Transferability
One of the criteria for valuing an asset is how it can be transferred from a buyer to a seller. Gold being a metal presents a certain difficulty in transport, obviously due to its weight. Bitcoin, on the other hand, can be transferred in any amount anywhere in the world. This can happen between two or more devices connected to the internet (but also offline), instantly.
3. Severability
How can I split an asset fairly? Gold presents some critical issues in this regard as, to create pieces equivalent in weight (and therefore in value), it is necessary to use very precise and expensive equipment. One BTC, on the other hand, can be divided into 100 million Satoshi (SAT). This level of division is also incorporated into the original Bitcoin code.
4. Fungibility
A coin is fungible by definition, but what happens if one has a tangible difference to another? I am referring, for example, to an impurity that can characterize a chemical element. When a gold bar has impurities, it no longer has the same value as its peers. A Bitcoin, on the other hand, is always equal to another, with no differences between the two.
Alternatives to investing in gold
There are some solutions that facilitate the investment in gold: these are cryptocurrencies that are linked to the actual price of this asset. Cryptocurrencies (such as PAXG or XAUT) have no transport or storage problems and are therefore sometimes preferred to direct investment in the precious metal. Unlike metal, moreover, there are annuity services that allow you to receive interest by depositing your investment in cryptocurrency. I'm talking about platforms like Celsius Network or BlockFi which yield 5.50% and 3.25% respectively on PAXG. Therefore, if you want to allocate a part of your portfolio in gold, it is possible to buy one of these crypto-assets and rent it. In this way you are exposed, while also receiving interest on your capital.
Conclusions
Let's assume that this is not financial advice. However, taking into consideration the above, one might think that one asset could perform better than the other in the future. This is due to the intrinsic characteristics of Bitcoin, which in addition to increasing its monetary value over time also tends to acquire value as a technology. It is in fact something that is in continuous development, and that can only improve over time. Furthermore, cryptocurrencies have characteristics for which gold as a physical metal would seem to all intents and purposes outdated. In fact and considering everything, every historical era has been characterized by a form of money, from bartering to coins, where the obsolete form of exchange has been irreversibly replaced by the more innovative one.
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