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In recent years, investing in Bitcoin has been seen as a possible way to diversify one’s investment portfolio. As a result of COVID-19 and what’s happened to the stock markets, an intriguing question has been brought up: is investing in Bitcoin as good as investing as gold?
Just a little while ago, Stanley Druckenmiller, an American billionaire, spoke on CNBC about his views on Bitcoin: that it “could be an asset class that has a lot of attraction as a store of value to both millennials and the new West Coast money.”
Why Druckenmiller’s views matter
His views were the inspiration for this article! Druckenmiller is a notable figure in the global financial industry due to his 30+ years of experience in financial management. For a self-declared “dinosaur” who owns a ton of gold, mentioning that he now owns some Bitcoin sure is something, especially for many who strongly believe in the cryptocurrency.
In addition, Druckenmiller publicly recognizing that “Bitcoin is an “asset class” with a potentially strong investment case for some investor groups” (as shared by Coindesk) makes it a “worthy validation”. What’s perhaps significant is how Druckenmiller’s views came right after Bitcoin’s correlation with gold hit an all-time high.
Bitcoin & gold’s all-time high correlation
Coin Telegraph found that Bitcoin and gold “reached a record high of 68% as Bitcoin hit US$12,000” in early August 2020, though this “correlation crashed by 20% the following week”.
Despite this, some say that Bitcoin could become digital gold due to the current pandemic’s uncertainty as investors veer towards assets that store value, i.e. Bitcoin and gold.
In fact, on the morning that this blog post was written (November 18, 2020), BBC reported that Bitcoin hit a three-year high of US$18,000/€15,000 as a result of this: investors “flocking to cryptocurrencies during the pandemic-driven volatility on global stock markets”.
Bitcoin and gold
Is having Bitcoin as good as having gold in your investment portfolio? While the debate goes on out there, there are valid comparisons between Bitcoin and gold as investments.
Rarity
The total supply of Bitcoin is 21 million, all of which will come into circulation by 2140 due to Bitcoin halving. Similarly, with gold, no one knows when all of it will be mined from the earth. In fact, there may even be gold being mined from an asteroid in the near future as the US Money Reserve has reported!
Exchange for money
Bitcoin and gold can both be exchanged for fiat currency, and vice versa. What’s interesting is that while Bitcoin acts as a currency as you can use it as a form of payment, the same can’t be said for gold. Gold itself can’t be used as a form of payment.
Baseline value
Both gold and Bitcoin have tremendous baseline values due to the way that they are used. Gold has been used in many ways throughout history, while Bitcoin brought a new focus to blockchain technology and is enabling global financial inclusion.
Transparency and safety
With Gold’s established trading system, it’s difficult to steal it and to pass off any imitations. Hence, its transparency as it’s difficult to corrupt. Likewise, Bitcoin is difficult to corrupt because of its decentralized system that’s encrypted. While both are transparent, gold is deemed safer than Bitcoin as Bitcoin’s infrastructure to ensure safety is not yet fully in place.
Volatility
Fox Business states that “gold is considered a safe haven because it has acted as a store of value, maintaining its purchasing power for thousands of years”. Bitcoin, on the other hand, is known for its ‘wild’ volatility with its recent high of US$18,000 on November 18 and hovering around US$4,000 1.5 years ago.
Can Bitcoin be considered the “gold” of crypto investment?
While many do indeed see Bitcoin as a safe haven like gold, and Druckenmiller himself recognizing that Bitcoin can be an asset class, others such as Shane Oliver (head of investment strategy and chief economist, AMP Capital) and Marie Tatibouet (CMO, Gate IO) are cautioning against this perspective. The reasons? Volatility, liquidity and rate of adoption. Still, this hasn’t stopped crypto enthusiasts from believing it could be.
Bitcoin vs Gold, what is a better investment in your opinion?
Thanks,
Karl
Bit(casino).io
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