Most people still heavily underestimate the potential of Bitcoin in light of the current economic instability we are going through. While more people have started to invest their cash to protect their monetary wealth from inflation, only a small percentage chooses to buy bitcoin as a store of value.
And yet, Bitcoin maximalists claim that the popular cryptocurrency will flip gold soon. The precious metal has been the primary store of value for thousands of years and the market is currently valued at approximately $11 trillion. That is more than 10 times the current price of bitcoin. If the popular cryptocurrency were to reach this marketcap, its price would exceed $600.000 per coin. Is this realistic?
In this article, we set to discover whether Bitcoin is the new gold by comparing the two assets in key areas. Let’s delve in.
Performance over the past decade
Price performance is the one metric everyone agrees Bitcoin is the clear winner. A few hundred bucks invested in Bitcoin in 2011 would have created multigenerational wealth by now, while gold still ranges into the same price point as it was previously. With the price increase comes increased adoption, and with a larger network, we see a more solid statement for the new electronic currency.
To understand the price increase we need to look into supply vs demand dynamics, a topic we will briefly touch upon in a bit. For now, however, it is important to mention why there is such a high demand compared to the availability of coins.
- There are only 21 million Bitcoin in existence, a hard cap that gold cannot provide. From these 21 million coins we see more and more being stored in private wallets offline, which reduced the amount of BTC available for trading. At the moment only 3 million Bitcoin are stationed on exchanges.
- Bitcoin is the only fully decentralized cryptocurrency in existence (due to its anonymous founder), which makes its demand as much philosophical as idealistic. It is the only way for individuals to escape the monetary system that inflates faster than ever before. And since the COVID19 crisis started, the demand is higher than ever.
Risk vs reward
Gold bugs claim that Bitcoin will never become a “gold 2.0” as the risk of owning it exceeds the reward they can get from it. According to them, this risk is primarily seen in two areas:
- The extreme volatility that Bitcoin goes through in short and mid-term periods.
- The potential of a global ban, which would eliminate on/off ramps and thus the ability to cash out and use BTC as it was meant to be used – a digital currency.
Bitcoin holders tend to disagree with both these statements claiming that these assumptions are only made based on a lack of understanding at both geopolitical and fundamental levels.
- Volatility may be rather heavy in the short term, but Bitcoin has predictable market cycles that follow its halvings, which in turn lead to a rather predictable increase in value over time. This is further illustrated in accurate price models like the S2FX, created by PlanB.
- A global ban is out of the question due to Bitcoin’s geopolitical significance. Nigeria already tried banning Bitcoin, and so did India. The result? An increase in usage. The United States is said to be preparing hefty taxation bills to discourage people from investing in crypto, but such laws are hard to be enforced if people simply hold their Bitcoin in private wallets. Hence, all the US can do is exclude itself from the Bitcoin network, a decision that has many drawbacks with regards to economic growth.
Supply vs demand
Gold hoarders tend to think that the use case of gold as jewelry and electronic compartments makes it valuable. However, this outdated belief is not shared with the crypto folk. The latest believe that the unknown global supply of gold is its biggest drawback, even if there is a general idea of a rather restricted supply. Pairing this with the decrease in demand for gold makes it clear that Bitcoin is winning here too.
And it would be hard not to. Limited supply, predictable minting, growing demand from retail and institutions – it is hard to argue that Bitcoin is not a newer, better version of gold. Which brings us to the last point.
Popularity across the world
Millennials are the new investors of our generation. And nearly no one wants to go through the complexities of buying and storing physical gold, which is both expensive and inefficient. To buy Bitcoin, all you need is a cheap smartphone and an internet connection. It’s as simple as that. So, do we believe Bitcoin is set to overtake gold in the next couple of years? In our opinion, it is inevitable.
