Gold and BTC: Between the Two Markets
Getting to know Bitcoin (BTC) can be mind-boggling as it is a young and volatile asset. On the one hand, crypto-enthusiasts loudly cheer for the first virtual currency ever created every time it makes new highs.
While many sceptics, perma-bears, take great pleasure looking at the price of Bitcoin when it goes down, as they claim that it has “no intrinsic value.”
Since its inception in 2008, Bitcoin, however, managed to climb up the economic ladder, and is now often being compared to a digital version of gold. Indeed, just like the most famous of the precious metals, BTC is rapidly becoming a reputable investment vehicle. Having said that, is Bitcoin better than gold? Let us have a look at both markets.
The Gold Market
Since the dawn of time, gold has served many purposes. In addition to being used in the process of confectioning jewels and ornaments, it also has conductive properties that make it very valuable to electronics manufacturers.
Furthermore, gold has another singular property: its price action is inversely correlated to speculative assets, such as the equity market. For that reason, many refer to gold as a “recession hedge.” Here is an example of this relationship.
From October 20th, 2008, to September 12th, 2011, gold’s price increased by 175% whereas the S&P 500 (SPX), during the same period, struggled to register a 17.66% gain. In a period characterized by geopolitical uncertainty, notably when the subprime crisis crippled the United States, and Greece’s public debt was threatening the financial stability of Europe, smart money moved into the precious metal that proved to survive the test of times.
Although it is almost impossible to predict the next economic slump, the current trade war opposing China to the United States seems to have a positive impact on gold’s price. Between July 2019 and last December, gold went from $1,233 to $1,437, registering 15% gains.
The Bitcoin Market
Bitcoin was indeed on everyone’s lips after it nearly reached the $20,000 mark in 2017. The speculative mania phase then faded away, and BTC dropped as low as $3,200 in December 2018.
However, just like gold bugs, Bitcoin believers seemingly considered the first crypto as a way to protect their capital as the two biggest economies of the world are currently imposing tariffs on imported goods coming from their rival.
BTC managed to make a decent recovery from the low of 2018 and reached $13,765 on June 26th, 2019.
Regarding the fundamental aspect of the market, some analysts claim that Bitcoin has no other purposes than financial or transactional ones, which is why they prefer gold.
Nevertheless, crypto enthusiasts remind them that BTC is far more practical to use, as it is possible to trade bitcoins online. Indeed, it is far more convenient to send bitcoins to someone in another country than a bar of gold!
With companies like Bitvavo, newcomers can buy or sell their BTC and therefore step in the crypto-market. Moreover, the blockchain, the underlying technology of Bitcoin, is immutable.
Therefore, as soon as the data is processed, the transactional record cannot be modified because the blockchain can prove that a recipient has received a certain amount at a precise time, no third parties are involved in the process.
Lastly, Bitcoin’s supply is limited to 21 million units, which makes it scarce. Thanks to the law of supply and demand, price should go up as long as there are people interested in buying it.
Even though it looks expansive, remember that the total market capitalization of BTC currently stands below 180 billion dollars, whereas gold’s market capitalization has an estimated value of 8 trillion dollars. This potential for growth, however, leads to more volatility, which can scare the unexperienced crypto-investors.
In some ways, gold and BTC are very similar because they share many characteristics.
To be brought to the market, they both need to be mined, one electronically through algorithms, and the other physically with machinery. Thus, both Gold and BTC can be used as a store of value, especially if we get signals that the global economy is weakening and if the inversed correlation remains intact.
These similarities do not mean, however, that they are identical. Gold is much more stable than Bitcoin because it has a more lasting price history, whereas BTC is indisputably more volatile as it is a creation of the 21st century.
Nevertheless, Both gold and BTC can coexist, as they somewhat meet the same needs in different w