Every investor strives to protect the acquired capital by buying stable assets. And if earlier it was gold, now many people choose Bitcoin because of its interesting features.
New Digital Gold or Traditional Asset, which should you choose?
Every human acts according to the rules of nature. We are trying to make our life, and the life of our loved ones, more comfortable. Money helps to complete this task, but also a competent investor thinks about how to protect their capital.
For many centuries, gold has been considered a win-win asset that allows you to reliably “freeze” funds without the risk of a fall in the rate. But today more and more experts are talking about Bitcoin becoming the new gold of the digital era. But is it true, what are the differences and similarities between cryptocurrencies and precious metals?
For centuries, gold has been the primary standard of value. Moreover, some countries have used this precious metal to provide the value of fiat money. This method became possible because gold is a stable asset (it has almost static value with no high fluctuations). Today, about 2500 tons of this precious metal are mined every year (which is about 1% of the nowadays reserves), so it is possible to accurately predict the value of an asset in the short and medium-term. Of course, there have been moments in history when sharp inflation awaited gold (for example, at the time of the discovery of America by Columbus, when Spain almost bathed in gold), but today such a situation is impossible.
The situation is different if we are talking about fiat money. One of the most common currencies is USD. But its value half a century ago and now is radically different. Over time, the US dollar loses its value. Against the background of the constant printing of new banknotes, the currency is literally on the verge of an abyss of devaluation, and a significant decrease in its rate. That’s why gold is becoming a really attractive asset for saving money. For example, it recently updated its all-time high, which was set in 2011 ($1920). The new record is $1954.
Bitcoin is a digital-analog of gold, because there is also no unexpected or uncontrolled emission, and the number of coins is limited. Investors consider Bitcoin as a safe haven asset similar to gold, given that the volume of cryptocurrency trading has increased during the conflict. Between May 19, 2019, and August 19, 2019, during the U.S. trade war with China, there was a 284% surge in Bitcoin compared to the period between March 22 and June 22, 2018.
But it should be remembered that cryptocurrency has at least one indisputable advantage over metal – mobility. This means that gold is more difficult to sell or send to another person, and the Blockchain allows you to make a fast transaction of almost any amount in a matter of minutes. Moreover, the owner of a digital asset can travel with it to any place – money will always be in the access zone (of course, it necessary to have access to the Internet and Blockchain), and gold is very difficult to export abroad.
Why Is There No Unexpected Emission?
Limited emission is one of the main advantages of cryptocurrency. It is thanks to the presence of the limit that the virtual coin is not subject to inflation, and its value for investors is growing every year. This feature of Bitcoin appeared because the coin is a unique mathematical code. The SHA-256 algorithm has a limited number of variations, so there cannot be more coins on the market than planned – this is mathematically impossible.
At the end of January 2021, 18 615 606 BTC have already been mined out of a possible 21 million coins – this is 88.65%. The remaining 11.35% has 120 years to mine. The last block is projected to be mined in 2140. The Bitcoin emission rate is planed into its code and is strictly limited. Production is halved every four years. This feature avoids inflation and makes the market more stable, which is also a positive side of cryptocurrency in the eyes of investors.
Skepticism to Bitcoin
However, there are many skeptics about Bitcoin and cryptocurrencies who believe that gold is a more reliable and predictable asset. They argue that digital currencies are like a soap bubble, where almost everything depends on the demand in the market. This is partly true because the value of Bitcoin is governed solely by the interest of traders. But there is well-known financial wisdom: “a product costs exactly as much as you are willing to buy it for.”
Lamborghini on a desert island will cost $0 because no one needs it here. Also, this car in Switzerland and Thailand will cost differently, because the demand will also be different. And this even though the cost of producing remains the same. Therefore, a similar “claim” of “artificial value” applies to gold as well. Because this metal costs exactly what buyers are willing to pay today. Just like cryptocurrency.
Another far-fetched claim is that Bitcoin has no physical form, and is not used anywhere, so, it cannot be worth more than gold. But this precious metal has not been used on an industrial scale for a long time (except in exclusive goods). Its main field of application is a jewelry and simple ingots, which are stored in safe deposit boxes. And here the cryptocurrency looks much more promising.
Risks and Conclusion
Perhaps the most grounded claim is the statement about cryptocurrency volatility. Yes, Bitcoin can drop in price by 10-15% per day, and at a distance of a month, this price can be really sad. But high volatility is not just a risk of losing money. This is an opportunity to make a good profit due to exchange rate fluctuations.
Of course, inexperienced traders will not be able to make money systematically. The exchange is a complex mechanism with dozens of parameters that require your attention every minute. Therefore, if you do not want to miss such a promising opportunity for earning money, it makes sense to trust real professionals. Our company has a rich experience and many important features that help to achieve success.