Throughout history gold has been considered as one of the most valuable assets to have. Over the last 10 years the value of gold has risen rapidly from around $400 per ounce in 2005 to over $1800 by the end of 2011. Then in 2013 gold suffered an epic plunge. Such are the ups and downs even for a safe haven asset such as gold.
Recently gold has found strong support and looks to be heading for another bull run perhaps even shooting up near the $3000 mark as China’s appetite for physical gold spurs demand. In fact gold demand in China is at record underlining a shift in global demand from west to east. Bullion surged 41 percent in 2013 from the year before, according to data from the China Gold Association.
While gold fluctuates wildly, so does bitcoin. The astronomical rise of bitcoin in recent times has compelled some its investors to draw comparisons with gold. But is it comparable?
With both the investment vehicles exchanging paths late in 2013, investors began to compare the two. Gold enthusiasts argued that how can a virtual currency be compared to gold, which is physical and has an intrinsic value and has been “the asset” to hold for centuries. In reply, bitcoin investors argue the limited supply, ease of use and security of the bitcoin. This brings an important question to light, are bitcoins better than the gold? Although the bitcoin market is much smaller than the gold market, it is plausible to draw some comparisons, given their similar growth patterns.
I do not argue for or against either, and keep accumulating both. Having said that bitcoins are much easier to buy and I do enjoy the anonymity factor. So here are just a few aspects of bitcoin that make it a better investment than gold:
1. Transactional Charges: For private investors each gold transaction is accompanied by heavy transaction costs, customs charges and it certainly is not anonymous unless you walk into a gold dealer and buy at a hefty premium. Bitcoin on the other hand is anonymous and one can store bitcoins in their digital wallet. Bitcoins are then easily converted to a fiat currency of your choice, or used to buy goods and services online. The fees associated with a bitcoin transaction are a fraction compared to credit card or other online payment methods such as Paypal. Furthermore, bitcoin is a peer-to-peer system and you can easily transfer bitcoins to anyone with a bitcoin address. Imagine traveling to another country with bitcoins in a digital wallet and exchanging them directly for local currency without any middlemen? This is the future of bitcoin. No forex fees, no credit card security issues or fraud, and bitcoin can live in your mobile phone!
2. Lack of Regulation: The main reason behind the rise of bitcoin is the lack of regulation guiding its market. Unlike gold, bitcoin is a decentralized financial instrument, i.e. it is not controlled by any government, or a financial authority. This makes bitcoin more fluid and more investor friendly.
3. Divisibility: Another aspect of comparison between bitcoin and gold is the divisibility factor. Manufactured gold is usually found and transported in the form of gold bars, or coins, which are not easily divisible. But, bitcoin is divisible to the eighth decimal point, which makes it perfect for small transactions online.
4. Limited Supply: Unlike gold, bitcoin has a capped supply, there can only be 21 million bitcoins in existence. Currently there are about 11 million bitcoins in use and to mine another 10 million may take a couple of decades. Bitcoin enthusiasts believe that the limited nature of supply of bitcoin prevents depreciation in the long run.
5. Security: Bitcoin offers a secure channel for online transactions. Every transaction log is public (yet anonymous) and the possibility of a theft or fraud is eliminated.
But is bitcoin better than gold? In some ways it is but you should have both bitcoin and gold in your portfolio.