Current Live World Spot Prices
Last update: Sat 21st May 2022 06:59 (Melbourne)
Gold: $2,623.12 AUD     $1,846.67 USD Silver: $30.90 AUD     $21.75 USD

Is Bitcoin The New Gold?

In April 2020, came under new management, articles published before this time, such as the below, may not reflect the views or opinions of the current team.

With so much surrounding Bitcoin and the whole Cryptocurrency concept, a lot of people have begun comparing an investment in gold to investments in cryptocurrency. Before going further, it should be noted that these two are extremely different. Gold is essentially a physical store of value that will last a lifetime. Bitcoin, on the other hand, is speculative. The only way that these two might be similar is that they both subscribe to the rule of supply and demand. When there is a problem with supply numbers not meeting demands, the price of gold or Bitcoin will be affected.

So, whilst gold remains the long term store of value Bitcoin is affected by everyone who is on that platform or network.

In an economy that is showing growth, where speculation drives market prices high, Bitcoin might be a good alternative currency to use.  But still, when the environment causes things like inflation, then there are threats of war, economic sanctions and uncertainty about governments, most investors will lean towards gold instead of Bitcoin. Another possible thing that these two might have in common with each other is that both have to mined. One is mined physically whilst the other is acquired digitally through blockchain technology. The price of Bitcoin is affected by the number of Bitcoins used on a daily basis to pay for goods or services. It is also bolstered by the global network of miners.

Although many have called Bitcoin: “digital gold”, there are some fundamental differences between these two. Bitcoin is extremely volatile. This Cryptocurrency lost 83% of its value between April 10, 2013 to April 21, 2013. The currency crashed again recently losing 70% of its value from December 2017 to February 2018. Cryptocurrencies also lost $500 billion in market value due to the move by governments to regulate cryptocurrencies. Credit card companies have also been known to halt purchases. Investors remain concerned after the cryptocurrency’s unjustifiable meteoric rise.

In a recent Bloomberg article Jeremy Grantham of GMO LLC quoted a letter he used to communicate his concerns with investors. In the letter, he cites three primary issues he has with Bitcoin.

1) Bitcoin still has no fundamental value

2) It works well in unregulated markets

3) a delusional story of wealth and grandeur

To Grantham, these are clear signs of gold operating within a bubble. Bubbles burst eventually, so Bitcoin should not be presented as a safe haven asset.

The London Bullion Market Association, the organisation responsible for pricing gold, ensures that the gold price is updated frequently from day one. Some retailers will allow you to make a purchase with Bitcoin. APMEX Inc. for instance, is one of the major bullion dealers in the world that accepts Bitcoin payments. It makes sense that digital currency holders would want to own something tangible and valuable like gold. According to APMEX, Bitcoin buyers tend to buy 3 to 6 times the amount spent by the average customer.

Bitcoin’s volatility added to the dynamic s of the gold market makes things interesting. While some Bitcoin holders jump at the chance to swap their digital currency for gold, others prefer to hold on to their Bitcoins. Others actually use their gold to buy Bitcoin. The logic is, why have gold that stays at a certain price, say $1000 when you can have something like Bitcoin whose value increases by crazy margins everyday. Savvy investors often find it worthwhile to diversify their investment portfolios. Have gold as a safe haven and if you like living on the edge, add some cryptocurrencies in the mix.


Leave a Reply

Your email address will not be published.