Will Bitcoin Become the New Gold Standard?
In a world rapidly shifting towards digital business, Bitcoin (BTC) is emerging as a significant player. As companies from Tesla to Microstrategy and various banks integrate Bitcoin into their portfolios, it is becoming increasingly clear that we are witnessing a turning point in the financial era. Bitcoin, limited and highly valued in uncertain times, is rapidly gaining traction as a hedge against traditional monetary systems.
Why Bitcoin is a Safe Haven
During periods of extreme currency printing and market uncertainty, Bitcoin has become a sought-after asset. Institutions and individuals are flocking to exchanges like Coinbase, PrimeXBT, and Kraken, and adding Bitcoin to their balance sheets as a protective measure against the current monetary climate. While Bitcoin is unlikely to replace gold entirely, it shares many characteristics that make it a compelling alternative.
Bitcoin vs. Gold: Similarities and Differences
Technically, Bitcoin is not meant to replace gold. However, it shares remarkable similarities with the precious metal, making it a worthwhile competitor in the global economy.
Key Differences
Non-Tangible Asset: Unlike gold, Bitcoin is a digital asset. While companies have created collectible coins, these do not represent actual Bitcoin; they are simply creative ways to sell commodities wrapped in a cryptocurrency package.
Predictability vs. Uncertainty
Predictable Cycles: Bitcoin has a very predictable cycle, repeating every 4 years from peak to peak. We are currently in the third year of this cycle. In contrast, gold's cycles are longer, more complex, and less predictable, occurring on an approximate 20-year cycle.
Cryptography and Security
Securing Bitcoin: Bitcoin is easier and cheaper to secure compared to gold. You can store it safely with free online wallets like Atomic Wallet or Exodus, or buy a Trezor hardware wallet for around $80. However, the private keys must be securely stored, as losing them can result in the theft or loss of your digital wealth.
How Bitcoin Resembles Gold
Rarity: Both Bitcoin and gold are rare. Gold is among the rarest elements, while Bitcoin's capped supply at 21 million units ensures scarcity. Some BTC may be lost due to forgotten private keys, reducing the effective supply further.
Divisibility and Fungibility
Divisibility: Bitcoin can be divided into 100 million units called Satoshi. Conversely, gold can be divided into smaller pieces, with a 1/20th ounce coin representing a significant portion of its weight.
Recognizability
Recognition: Both Bitcoin and gold are widely recognized as valuable assets. Gold has a 5000-year history of being prized, while Bitcoin, with its 12-year history, still has a long way to go to match the global recognition of gold.
Future Outlook
Replacement Controversy: While Bitcoin may gain more acceptance and value in the coming years, it is unlikely to fully replace gold. Gold's long-standing reputation, combined with the physical nature of the asset, gives it an advantage. However, as innovative as Bitcoin is, it may eventually gain equal status with gold in the financial landscape.
Current vs. Future Scenario
For now, gold investors are unlikely to sell their assets en masse to acquire Bitcoin. Instead, many early Bitcoin investors are using gold purchases as a strategy to transfer their wealth. As the 4-year cycle of Bitcoin approaches its end in December 2021, there may be increased buying pressure on gold and selling pressure on Bitcoin.
In conclusion, while Bitcoin is a strong competitor and is likely to grow in importance, it is improbable that it will fully replace gold as the standard for storing wealth.