Traditionally, gold has been the favourite child when it comes to safe haven assets, but the rising popularity of bitcoin is hard to ignore–is it a better investment than gold?
Looking at the year bitcoin has had, it’s safe to say the cryptocurrency has been a dominant force in 2017 and shows no signs of slowing down any time soon.
Since January 1, the digital currency has increased substantially from $997.69, and has consistently reached record highs over the year. Case in point, bitcoin reached $7,458.79 on November 8 for the first time ever. Looking at how the gold price has performed in 2017, the story is a little more lackluster as it’s had some difficulty staying above the $1,300 mark for any length of time.
Of course, while the prices of both bitcoin and gold fluctuate–just like any commodity–there is certainly a strong case for investing in bitcoin over the more traditional safe haven asset–and we’ve got details to help better answer the question, “is bitcoin better than gold?”
How are bitcoin and gold comparable?
Before digging into whether or not is bitcoin better than gold, it’s worthwhile looking at their similarities.
On the surface, it’s not hard to figure out that bitcoin and gold are physically different: in simple terms, because bitcoin is a digital currency, it technically doesn’t physically exist. Gold, on the other hand, can be stored in a variety of ways, including stocks, bonds, coins and bars, to name a few.
In terms of their comparisons, bitcoin and gold have the advantage of not being tied to one country or a central bank, meaning if there’s any type of government uncertainty, bitcoin and gold remain unaffected.
Similarly, the two can also benefit from economic uncertainty; the price of gold surged past the $1,300 threshold post Brexit vote in June 2016, while bitcoin and gold rose 4 percent and 3 percent correspondingly following the US election in November 2016.
The rise of bitcoin as a method of payment
Relatively speaking, bitcoin is still a new development, having come onto the scene when its creator, Satoshi Nakamoto, released the bitcoin whitepaper on October 31, 2008, whereas gold has been around for several thousand years.
“The advantage that gold has is it has a couple thousand-year history of being accepted as a safe haven asset, as being accepted as a means of payment, or a stored value,” Brian Kelly, founder of BK Capital Management told the Investing News Network (INN).
That being said, however, Kelly said that a significant advantage bitcoin has over gold is that it’s an accepted method of payment at thousands of different merchants, and can be sent anywhere in the world.
“I would argue that bitcoin is much better than gold in terms of a stored value and a means of payment,” Kelly added.
Ronnie Moas, founder and director of Standpoint Research, said in an interview with INN that bitcoin is–if it hasn’t already–going to be a “game changer.”
“The underlying technology is going to be embraced by dozens of industries,” Moas said, adding that it will be adopted by markets such as casinos, retail apparel chains, logistics companies, and banks, to name a few.
On that note, while bitcoin is already easily transferrable around the world, many businesses have already begun accepting it as a method of payment. Countries are officially adopting it as legal payment methods as well. Japan took steps to make it legal in April 2017. India is currently in a legal battle regarding the digital currency, which is not officially considered a legal payment, nor is it illegal. Over in Russia, president Vladmir Putin mandated legal structures involving cryptocurrencies as a whole in Russia, and look to create a “single payment space” in the Eurasian Economic Union.
Although gold is a legal stored value, it isn’t an acceptable method of payment the same way bitcoin has become in such a short amount of time.
Bitcoin supply and demand
While we may never know how much gold there will be mined in the world, what we do know is that bitcoin will cap out at 21 million coins at some point in the distant future. Kelly also said that gold is scarce and difficult to mine.
In terms of current gold supply and demand, a Gold.org report states that Q3 2017 saw a 9 percent decline in gold demand to 915 tons, while year-to-date demand has dropped 12 percent. The report also highlights that global gold demand in Q3 was the lowest it’s been since Q3 in 2009.
Gold supply also dropped in Q3, by two percent, while mine production dipped one percent year-on-year, “which was also the fifth consecutive quarter of net de-hedging. Looking ahead, it’s harder to determine what the actual numbers for gold supply and demand will be.
When it comes to bitcoin, Kelly stated that its supply–and the scarcity of it–is “a huge part of its value proposition.”
Similarly, Apple (NASDAQ:AAPL) co-founder Steve Wozniak said that because it’s hard to determine how much gold there is in the world, he said that makes it “kinda phony.” Because we know how many bitcoins there will ever be, Wozniak stated that makes the digital currency “genuine and real.”
“There is a certain finite amount of bitcoin that can ever exist. Gold gets mined and mined and mined. Maybe there’s a finite amount of gold in the world, but bitcoin is even more mathematical and regulated and nobody can change mathematics,” Wozniak explained.
As such, because there’s a cap on how much bitcoin there will ever be mined–and due to its rising interest–Kelly said that will continue pushing the bitcoin price up.
“[It’s] just simple economics: tremendous demand meets limited supply [and the] price goes higher,” he said.
Bitcoin price will continue moving higher
Looking ahead, as demand for bitcoin continues to garner traction, as Kelly said its price will continue moving higher well into 2018.
Next year, Kelly predicts bitcoin will break above the $10,000 threshold, particularly as institutional investors begin entering the market.
“Sometime in the next six months there’s going to be a wall of institutional money coming into bitcoin,” he said.
Moas’ projection for bitcoin next year is similar, who currently projects bitcoin will reach $11,000, although he said he may change that to $15,000.
That being said, Moas said there’s roughly $200 trillion “tied up” in gold, stocks, bonds and cash. Moas said that if one percent of that $200 trillion ends up in cryptocurrencies, that would make it a $2 trillion industry. Should that happen, Moas expects bitcoin to reach between $50,000-$100,000–but not for another 10 years.
Of course, that doesn’t mean the price of bitcoin isn’t volatile–it’s constantly changing by either reaching new record highs or dropping off significantly.
In an interview with Business Insider, Tom Lee, co-founder of FundStrat Global Advisor said, “when people talk about bitcoin’s volatility today, they’re forgetting that when we went off the dollar — the gold standard on the dollar, gold’s volatility for 4 years was about the same as bitcoin’s volatility today.”
So, is bitcoin better than gold? With many experts and analysts making a strong case for the digital currency, investors interested in the space will surely be keeping a watchful eye on how it plays out in the coming years.
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Securities Disclosure: I, Jocelyn Aspa, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.