Can Bitcoin Be Compared To Gold?
We move away from the general introduction of the first article with a much smaller subject : bitcoin and gold!
In the preamble, can we extend this comparison to other cryptocurrencies? A priori, no. Indeed, remember that the bitcoin issue is limited to 21 million s. Now, it is this rarity that is the main argument of this comparison. We will only mention bitcoin.
While the similarity between the two is not new, it has grown in recent months because of the value of cryptocurrency that has exceeded that of the ounce of gold .
Gold is THE ultimate safe haven . Exchange value for all, the precious metal is a shelter in times of crisis and security at any time because gold is considered a safe investment. So why these recent articles on bitcoin as new Eldorado ? Can we compare these two values that seem completely antinomic? Beginning of answer in this article.
Gold and bitcoin, values with limited quantities
Gold and bitcoin are not infinite values : gold is a raw material whose resources are depleted as discoveries are made, bitcoin is limited to a quantity of 21 million. This is a fundamental characteristic because what is rare is always expensive and sought after. This is the main approach that can be made between gold and bitcoin, which has consequences for the investment that is devoted to it.
The volatility of bitcoin against the so-called stability of gold
If there seems to be a difference between the two, it is this one. While the value of gold is generally stable, that of bitcoin rather embraces the curve of a rodeo horse.
Volatility measures the price differential of a certain financial instrument within a specified time. Thus, a highly volatile instrument is a risky instrument.
Bitcoin today repels many people because of this permanent uncertainty about its value . Even a supporter of cryptocurrencies like me is forced to recognize, bitcoin is not really a safe bet to place his marbles, at least in light of the definition given to the latter. -10% on Monday and + 12% on Tuesday will not shock a “cryptomaniac”. The first weeks of 2018 have not been easy … A heavy fall, far from being the first in our universe, but which will have been the first lived by the bitcoin media .
On the contrary, gold is known for stability and safe investment insurance, although the metal is subject to market fluctuations. This universal belief is not yet clearly established .
The proven instability of gold since 2011
The yellow metal has lost its splendor for several years . In question, many mini-crashes that have dropped sharply the price of the ounce. The latter had risen to over 1,800 dollars in 2011, a peak it has never seen since. The years 2011 and especially 2013 were particularly harmful for raw materials. Despite its safe-haven status, gold did not resist and sank , losing up to 40% of its value.
Since 2016, the price of the ounce of gold goes up but, as I write these lines (February 2018), stagnates around 1300 dollars.
Gold is not necessarily safer than Bitcoin today and the comparison is not as crazy as it looks .
Bitcoin as a potential substitute for gold
I have already quoted an article above but there are many others. For example, this one or that one . For many specialists, bitcoin easily compares with gold . Thus, apart from its extreme volatility, bitcoin can be a credible alternative.
For some, the value of bitcoin will even explode while the value of gold will, on the contrary, stagnate. It would then become a more attractive investment and this is probably one of the reasons why investors today tend to turn to crypto-currencies although I still remain skeptical about a $ 100,000 or so bitcoin . This situation is open to discussion and especially to a more detailed article.
In the first of the two articles I quote in this paragraph, the author considers that it would be wise to turn to both bitcoin and gold because the two would have a different function. While gold would be savings accounts , bitcoin would be a kind of checking account that could be used for our daily expenses. If the principle seems interesting to me, this reflection is today close to utopia (see for example the complicated challenge of a surfer trying to live only 30 days with bitcoins ). Admittedly, the author speaks conditional but the hypothesis of a current account in bitcoin is not for tomorrow for many reasons. For me, it is therefore more of a risky investment, as gold can be .
So, bitcoin is like gold?
In a sense, yes . Gold is no longer a UFO value that is not subject to market fluctuations and bitcoin has seen its extreme volatility shrink (a bit …). Bitcoin is a risky investment but a long-term investment or even a very long-term one . It is of course possible to use bitcoin as a currency but it is necessary to fight to find merchants accepting them. In addition, transaction fees do not encourage paying in bitcoins. And gold in all this? Gold can also be traded in currency … as finally can be bitcoin as long as it is not an easily usable currency.
However, in the long run, I take the risk of saying no . Gold is and will remain only a raw material. The gold standard system disappeared in 1971 and the yellow metal remains locked in a financial investment perspective . On the contrary, bitcoin is meant to leave this status of financial investment, status forced because of its confidentiality, for that of currency. Bitcoin and gold therefore have different purposes .
I see mostly many articles, mostly in French, constantly denigrating crypto-currencies, and bitcoin in particular. A currency used by traffickers, terrorist activities and many other high-profile names while these transactions would represent barely 6% of the total. When the comparison with gold is advanced, these same articles, often of general press, do not even evoke the tumble undergone by the gold since 2013 by considering it always a quiet value.
That is why the subject deserves a much more detailed article, and that I commit myself to write quickly, because I passed too quickly some points. For those who are interested, there are many tickets on the internet dealing with the subject. Avoid the general press and, if you read English, it’s better, the articles are of better quality (or this very intuitive video , in English).