8 min read
Good morning everyone (yes, everyone) as this week I took a look at the Bitnovo blog statistics and noticed that we received visits from many different countries. Today we are going to talk about the differences between investing in gold or bitcoin, two options that serve as a haven of value in the face of any crisis.
So if you are a Colombian eating arepa, an Argentine drinking a mate without sugar, a Spaniard eating paella or a Hungarian who has arrived here by mistake, I welcome you.
Just three of the countries named above say they are present in the top positions of the ranking of countries that lead the adoption of cryptocurrencies, so it will be even easier to explain what are the benefits of adopting crypto as a haven of value in the face of crises.
The main question or the crux of the matter lies in deciding between investing in gold or bitcoin. Gold, haven of historical value in times of crisis vs. bitcoin, considered by much of the public as “digital gold”.
Gold has been used as money for thousands of years as part of the evolution of the barter system. Although there have been other “currencies” such as cattle or silver in the middle, gold has become the preferred option.
This is because, in addition to being a beautiful metal due to its aesthetic characteristics, it is an extremely rare commodity that maintains its physical properties over time.
This has led him to be a stellar protagonist in the economic history of humanity, to the point that certain people saw a business in beginning to keep other people’s gold in a safe place. This is how the first banks were born, who kept people’s gold in security vaults and in exchange gave a paper that said “this paper is worth X amount of gold.”
Yes, you are right: the first “tickets” in history.
Since then, all banks have kept gold backing for each issued note, but in 1971 history would change forever. The then president of the United States of America, Richard Nixon made this announcement on television and decreed the end of the Bretton Woods agreements.
If you have been lazy to watch the video I can summarize it in one sentence: Nixon decreed that the dollar would no longer be backed by gold.
Did this make the gold lose its value? Nothing further from reality.
In recent weeks, gold has reached new all-time highs as a result, among other things, of the devaluation of the dollar.
It is no coincidence that Bitcoin was born in 2008, in the midst of the American mortgage crisis and with the aim of taking power away from the causes of this and many other economic crises around the world.
An anonymous response to the centralized power of governments and central banks who retain a monopoly on money printing and determine how much and when it will circulate. Because, as we saw earlier, governments no longer endorse their coins in gold and are free to issue whatever they want.
Bitcoin comes to decentralize this model, proposing a more open and transparent one, allowing all people to see, in real time, all the transactions that are taking place on the network.
To understand how you can provide this possibility to users, it is necessary to understand what blockchain is and how this technology that has come to revolutionize the economy, finance and many other sectors works.
So is Bitcoin the evolution of gold?
This question opens a huge debate, but my personal opinion is that it does. Without a doubt, Bitcoin is the evolution of gold.
Why? Mainly because it meets almost all its characteristics and also improves them.
But as we always say from this blog, it is important that you yourself generate your own opinion based on reading, informing and analyzing.
We will leave here some differences that further clarify the matter.
Main differences between Gold and Bitcoin
On the one hand we have Bitcoin, which is the largest and most powerful computer network in history and it is also distributed. It is a type of money that cannot be censored, stopped or reversed and it is totally apolitical.
It also has the quality of being able to be stored at a very low cost and eliminates the need for third parties to act as intermediaries.
On the other hand we have gold that has been used for generations as a refuge of value and a way of transmitting wealth. Its storage is a bit more complicated, but it retains its characteristics over time without suffering damage.
Gold cannot be issued either and the amount available on the planet is limited. It can also be used for jewelry or as a raw material in space technology.
Perhaps this picture is even clearer:
Price projection for Gold
During this year we have seen a significant increase in the price of gold of more than 30%, going from 1,500 dollars an ounce to 2,050 dollars reached on August 7 last. Among the reasons for this increase are:
– Great level of financial uncertainty unleashed by the Covid-19 pandemic.
– Low interest rate levels.
– Devaluation of the dollar.
Although it is difficult to determine if the price of gold will continue to rise, these reasons can help us understand what the variation in its price will depend on.
If these factors deepen (eg new outbreaks of coronavirus emerge in different countries) it is logical that the price of gold will continue to rise. If, on the other hand, a positive response to the effects of vaccines in development becomes official, it is likely that demand will begin to weaken.
Price projection for Bitcoin
Although it is a very different asset from gold, the data shows that there is indeed a direct correlation between the price of both at this time. And this is explained, in large part, by the same factors that cause the rise in the price of Gold.
The following graph shows the current correlation:
We all know that it is impossible to determine with certainty the future of the price of Bitcoin, but when observing the triggers for the rise and the advantages that this asset offers compared to gold (ease of exchange, issuance determined by code, etc.) it is logical to think that the future is more than promising for the leading cryptocurrency.
According to bitcoin provider insight Econometrics, bitcoin’s growth rate is, on average, almost twice the growth rate of gold so we could consider future projections even more auspicious.
I hope that with this article you have obtained a clearer vision about both refuge values so that you can lean towards one or the other. Or simply, you can do like many investors who choose to buy bitcoin and buy gold as a strategy to diversify their portfolios.