Would you rather own Bitcoin or Gold?

7 July, 2019

There has apparently been a dust-up between proponents of both crypto and gold, a dust-up that has resulted in some pretty aggressive marketing on both sides. CoinDesk reported in early June 2019 that Grayscale Investments had begun a marketing campaign encouraging investors to drop precious metals in favor of putting money into Bitcoin. That elicited a response from the GoldMoney website in defense of gold.

The point of this post is not to rehash the disagreement between the two. It is not to decide if one is right and the other wrong. Rather, we thought it might be interesting to explore the simple question of which one a person would prefer to purchase, if forced to decide between the two.

It is reasonable to say that both gold and Bitcoin have their strong points. But they also have their weak points. It's ultimately up to each individual to decide which one is right given current circumstances. For some investors, putting money into both is not a bad idea.

Price point on entry

We will start our analysis by talking about price point on entry. Price point is important because people are often scared away from investing by assuming that they have to have a ton of money to get started. It is not true with either gold or Bitcoin. There are ways to buy even small amounts if that's all you can afford.

At the time of this writing, gold was trading at around $1,400 per ounce. Bitcoin's price was hovering around $11,000 per coin. Using just these two numbers, it would appear that the entry point for gold is a lot more reasonable. But that is not necessarily true. You have to look at how both gold and Bitcoin are purchased.

For the purposes of this discussion, we are talking about physical gold and gold certificates that represent exposure to gold as a commodity. We are dismissing exchange traded funds, futures contracts, gold mining stocks and other types of securities as they are not in the same league.

How to purchase gold

You can purchase physical gold as bullion, coins, or even jewelry. An alternative is to purchase gold certificates from a company that actually owns the gold. A gold certificate represents a certain cash value that you own, linked to the company's goals. It is however advisable to actually own physical gold and not a piece a paper.

Here's the thing: you don't have to buy a solid gold brick. You do not even have to buy a full ounce. You can buy lesser amounts if you don't have $1,300 to spend. If you can only afford $500, buy that amount of physical gold. There's several gold vaults around the world that will sell you the gold and then store the gold for you as well. You can also take delivery of your gold at any time or sell it back to them.

How to purchase Bitcoin

Purchasing Bitcoin is a little different because it is not a tangible asset. But just like gold, you do not have to buy a full coin as a new investor. Bitcoin is divisible to 16 digits, so there are plenty of denominations above and below a single Bitcoin. Just like you can divide the U.S. dollar into 100 pennies, you can divide a Bitcoin into 100 million parts.

The end result of this is that you can purchase Bitcoin in very small amounts. Say you only have $30 to play with. That's fine. You do not need to have $11,000 lying around to get in.

Measuring return on investment

Your next consideration is what is known as return on investment (ROI). It has long been the belief of many investors that you cannot beat the ROI gold offers. But an honest look at history says otherwise. As a commodity, the value of gold fluctuates continually. It may not fluctuate as rapidly as Bitcoin, but it still moves up and down with fairly decent predictability.

The question then becomes one of how much of a return you can expect over a given period of investing. Are you looking for short-term gains? If so, the best time to invest in either asset would be at the very early stages of a bull market. If you are looking at long-term stability with more modest gains, it is appropriate to look at the history of the asset over years of tracking.

This is where gold has a decided advantage. People have been trading it for hundreds of years. You can clearly see its ROI history in the modern era by tracking prices over the last several decades. Cryptocurrency just doesn't have that kind of history. It is barely a decade old.

The question of utility

Any discussion of entry price point or ROI is ultimately rooted in an asset's utility. In other words, what can you use your gold or Bitcoin to accomplish? If you cannot do anything with it, it is of very little value in real terms. This is where Bitcoin clearly has an edge.

We understand utility in the investment world as the means of converting an asset into tangible goods or valuable services. A dollar bill has utility because you can take it down to the store to purchase goods. You can use it to put fuel in your car or food in your stomach. The problem with securities and most commodities is that they lack utility. Cryptocurrency, on the other hand, has plenty of utility - and that utility continues to grow.

You can't spend gold

Gold proponents like to make the argument that their chosen asset is a hedge against inflation and a store of wealth in the event of economic collapse. If you remember the years leading up to the turn of the 21st century, you might also remember the Y2K scare. Economists and investment professionals were encouraging people to buy gold just in case the world's economy crashed when the calendar turned from 1999 to 2000.

Looking back, most of that advice was absurd. Why? Because you cannot spend gold. You cannot shave a bit off your gold bullion and use it to pay for a loaf of bread. You cannot take gold coins and use them to purchase fuel for your car. For gold to have utility, it must be liquidated. That is to say it must be converted to fiat. This makes gold a good store of wealth but a lousy way to buy.

You can spend Bitcoin

The other side of the coin, so to speak, is that you can spend Bitcoin. You can use Bitcoin to purchase a lot of things online as long as the internet is working, Bitcoin is not made illegal, and there are merchants willing to accept Bitcoin. The good thing is that the number of merchants accepting Bitcoin is growing every day.

You can even send Bitcoin to family members and friends located anywhere in the world. They can spend those coins just as you can. Try doing that with gold. Sending gold to the other side of the world is both risky and unwise. Receiving it on the other end would still require liquidating it. Otherwise, the gold would have zero utility.

Having said that you can use gold vault services, which are plentiful around the world, to buy gold for a family member who can then sell that gold when they need emergency cash. Where there's a will, there's a way.

What makes you most comfortable

So, is it fair to say that gold is a better investment than Bitcoin or vice-versa? No. We have barely scratched the surface here, and yet it is clear that both assets have pros and cons. You cannot make the case that one is superior to the other when all things are taken into consideration. It all comes down to what makes you most comfortable as an investor. We recommend buying both!

We would like to point out that the debate between gold and cryptocurrency proponents is not new. Even before cryptocurrency existed, people were debating the value of gold versus other precious metals. They were debating whether or not to put money into commodities, or invest in stocks instead.

That is the curious thing about investing. You may prefer one particular kind of investment while your best friend prefers something else. In the end, all of your investments only have value because people are willing to invest in them. Take away investor interest and any asset will quickly become worthless.

If gold is what floats your boat, buy as much of it is you want. You have the freedom to do with your money whatever you wish. If you think cryptocurrency is a better deal, you have lots of options to choose from. Bitcoin is not the be-all and end-all. At the end of the day, there really is no right or wrong here, which is why a savvy investor will embrace both gold and Bitcoin.

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