Much has been written about how Bitcoin is being considered by many to be the “new gold”. The skyrocketing price over its 13 year history makes it easier for many people to believe this, combined with the cryptocurrencies built in limited supply. CNBC running a Bitcoin ticker all day reinforces this.
Aficionados of Bitcoin like to compare its price runup to gold and other assets and make the case that Bitcoin will continue to increase. However, in many of these written arguments about the superiority of Bitcoin versus Gold, omitted are facts about Gold that make the comparison of the two nearly nonsensical. Anyone can run historical price comparisons of two items and extrapolate, but that does not equate to a sound investment. For example, comparing the price movement of Crayola Crayons to the price of wood flooring might lead to the conclusion that one will appreciate more in the next two years, but calling them equivalent is a mistake.
Gold Is Used Every day by Most People
Most analysis fails to point out just how prevalent Gold is in society. First, it conducts electricity better than virtually any other metal which is why it is found in every cell phone. This is just one industrial application. It is unlikely that the world will be producing fewer electronic devices anytime soon, so this part of the demand is all but assured.
Gold is one of the most malleable metals and also does not tarnish over time, another unique quality. This makes it one of the most desired substances to make jewelry from, as anyone who has ever given a significant other a holiday, anniversary, or similar gift.
Of course, Gold is a limited in supply, natural metal making it intrinsically rare and valuable due to both the rarity and the utility. Admittedly, it is physically unwieldy making portability a problem.
Bitcoin Non Use
It is undeniable that more and more people and now institutions are buying Bitcoin and its price appreciation is clear evidence, the recent pullbacks notwithstanding.
However, very few people or institutions are using Bitcoin as a currency. In fact, as a currency it is difficult to use, despite it being 13 years old. Moreover, a growing number of Bitcoin proponents are now saying the primary utility is not as a currency but as a store of value.
There are many problems with the store of value argument, notably no underlying utility, but more importantly, there are hundreds of competing cryptocurrencies and more being created. There is no limit to the number of competitors, one of the main reasons why famed investor Warren Buffet, among other notables do not see value.
Some argue that the reason Bitcoin has value is that is has and continues to prove out the benefit of blockchain. It is a fact that Bitcoin’s existence has proven that blockchain technology works, and in fact blockchain has great potential in many industries. However, Bitcoin proved this years ago, and now other solutions such as Non-Fungible Tokens (NFTs) continue to show utility of blockchain.
When thinking about placing money in assets that are either non-correlated to the stock market or an offset to inflation, Bitcoin is not a replacement for Gold, but a financial advisor can help think through the options that best fit your situation.
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