Can bitcoin become a substitute for gold?

When comparing a new asset class to a traditional one, investors often wonder, “Are they really comparable?” As many people ask how to compare bitcoin to gold, we will review several aspects of these two assets that will help answer that question.

Gold

Let’s start with gold first. People have valued gold for thousands of years. Gold has always had value – from ancient Egypt, where it served in tombs and temple rituals, to the present jewelry industry.

Due to its rarity, gold has also played a number of roles in the US economy. The gold standard was one of them and for decades, until 1971. Until the end of the year, when President Nixon ended it, the value of the dollar was always fixed at a fixed amount of gold.

One of the reasons the dollar was pegged to gold was that the dollar should not go through the process of quickly becoming a new currency. In order for a thing to become a means of payment, it must first gain sufficient trust, or as secure a store of value as possible. Gold has been slowly but steadily gaining that trust for thousands of years, and it has the trust. Therefore, the dollar was then pegged to gold to gain trust quickly, and volatility fell when the dollar quickly took on the role of store of value through just one decision, and it quickly became a means of payment.

According to the philosopher Aristotle, money must meet three main criteria:

1. Exchange medium (a medium of exchange)
2. Unit of account
3. Store of value

Today, we no longer use gold as money. Instead, it is used mainly for jewelery and in the form of bullion and gold coins, although it can also be used in other fields, such as electronics, dentistry and even aviation.

One interesting note is that no matter what generation you belong to (baby boomers generation, generation X, millennium or generation Z), you have at least heard of gold.

What about bitcoin?

Bitcoin was established in 2008. with a view to holding any currency independent of the government or the bank. This idea came from monitoring the consequences of excessive centralization.

Bitcoin is still earning that trust, greater confidence in the store of value. So bitcoin should be looked at separately, it has to go through its own flag and it will take some time. According to our cryptocurrency expert Asse Sauga, gaining the trust of this store of value is in the final stages.

In the final phase, which means that volatility has dropped significantly and the volatility confidence also drops according to how much mass is actually behind it. It depends directly on the availability of money and the amount of money spent. The less, the weaker it is money is for all kinds of change and manipulation, and the more volatile it is. The more powerful he is and the less volatile he is.

Gold versus bitcoin

In order for bitcoin to be considered “digital gold”, it should have the same characteristics as gold, except for palpability. The first point of the property can be filled with rarity. Both asset classes have limited supply and are therefore rare.

With regard to the currency aspect, we can compare the three criteria mentioned above:

1. The medium of exchange: both gold and bitcoin are instruments of exchange because we can exchange them for goods and services.
2. Unit of account: We can divide gold into half an ounce or a quarter ounce, and we can divide bitcoin into less than one satosh, which is equal to 1 / 100,000,000 bitcoin.
3. Preserving value: this is debatable. Usually, a value asset refers to an asset that you rush into during an economic turmoil because it has its value. Bitcoin has played this role in the past, but during the current crisis, its behavior has been more similar to the stock market.

Can bitcoin become a substitute for gold?

Interest in the world’s largest cryptocurrency has grown even more this year, with investors seeing bitcoin as a hedge against inflation and an alternative to the depreciating dollar.

However, Federation President Jerome Powell said Mondaythat Bitcoin lacks the main ingredients that would make it a useful currency. Therefore, cryptocurrency is essentially more of a substitute for gold than a dollar, and rather an asset to speculate on.

At present, gold remains gold against financial uncertainty and bitcoin remains a bitcoin as a speculative investment. Let us not forget that cryptocurrency is a relatively new way to exchange value globally, securely and privately, with the sense of freedom that many want to revive. However, it is likely that this will change in the future and bitcoin will become an investment that most want to share, making it more valuable than gold.