Bitcoin vs. Gold – Let’s Settle the Debate

A lot of people relate the concept of Bitcoin to Gold, as a store of value.

Have you ever wondered, what makes Gold valuable? Why Gold is a store of value?

Let’s have a detailed view of factors that give Gold its value.

Civilizations have been trading Gold since about 600 B.C. Gold is supposed to never lose its intrinsic value because it is a Precious Metal and with a bunch of practical applications. But wait! Is it really never gonna lose intrinsic value?

What puts value in Gold? 

In ancient times, our ancestors wanted a medium of exchange, a currency, mainly coins. They were only left with iron, copper, lead, silver, gold, palladium, platinum, and aluminum because the rest of the elements are gases and reactive elements.

Gold is the most non-reactive element, also it is easy to extract and melt, compared to other elements listed above. Finally, gold is golden and shining.

Now, any currency doesn’t have to have an intrinsic value. It derives its value from society. We, as a society decides the value of a currency.

Due to its physical and chemical properties and being a convenient medium of exchange, it was given its value by society. (Which is now in hands of government; the value)

Bitcoin being the better version of Gold:

• Mining : Distribution of Gold in earth’s crust is not even. Some countries has larger gold reserve while some have no reserve. So all countries can’t participate and mine gold in a competitive manner. Bitcoin mining mechanism is built in such a way that probability of a block generation(mining Bitcoin) is randomly distributed among mining machines. That gives equal opportunity to everyone who is willing to mine, with containing the core value of limited supply, same as gold.
• Technical Properties : Gold has some physical and chemical properties that makes it a easy and convenient medium of exchange, for a world without technical disruption. Now, we live in more connected, advanced and technological era. A currency having perfect technical properties should work for this era. Bitcoin is an unhackable, super portable across borders, completely governed by society (as Gold was supposed to be), without involvement of any central authority, perfect medium of exchange for this world. Just like gold derives its value by having physical and chemical properties, Bitcoin derives its value by havaing technical properties which makes it better medium of exchange.
• Gold and Bitcoin as store of value : Gold and Bitcoin started as a medium of exchange but now both of them have become a store of value. While there are better versions of Bitcoin coming up in the market as a better currency, Gold and Bitcoin hold their superiority, being a major mover and shaker in stock and crypto market.

According to an article published on BBC magazine:

“In the 16th Century, the discovery of South America and its vast gold deposits led to an enormous fall in the value of gold – and therefore an enormous increase in the price of everything else.Since then, the problem has typically been the opposite – the supply of gold has been too rigid. For example, many countries escaped the Great Depression in the 1930s by unhitching their currencies from the Gold Standard. Doing so freed them up to print more money and reflate their economies.”

Countries had problems with hitching their currency to Gold. So countries ended up printing more money to reflate their economy and now you have the case of Venezuela and Zimbabwe. Their economy has collapsed due to the excessive printing of money. Points to think about! Also, think about how Bitcoin comes into play and removes both problems. (Hint:  inbuilt mining mechanism and limited supply)

There are a bunch of other reasons which justify Bitcoin as a suitable currency for this technologically advanced world ever, but Gold and Bitcoin both have their own industry which is revolutionary and exciting. Gold has been with humans for a long long time. Gold is here to stay; Bitcoin and Gold are gonna co-exist as complementary assets. Investment in Bitcoin and Gold is like a question: “Would you like to have Gold or invest in internet companies in 2003?”

Possible Growth of Bitcoin in Respect to Gold ETF History

It’s been a decade since the world’s first exchange-traded fund backed by physical gold. Today, people are in awe of how the introduction of gold Etf has had a significant impact on the gold market.

First Gold-backed ETF was launched on March 28, 2003, which was developed by ETF securities. Since then, interest has increased a lot in Gold with having price of $1600 per ounce from $332 per ounce at the time of launch.

According to wiki “The idea of a gold exchange-traded fund was first conceptualized by Benchmark Asset Management Company Private Ltd in India when they filed a proposal with the SEBI in May 2002. However, it did not receive regulatory approval at first and was only launched later in March 2007.”

You can see the price growth since the inception of Gold Etf. Imagine the same chart for Bitcoin with the same growth rate.

Gold ETF opened an entirely new market for precious metals backed Etf. Soon, it emerged as a potentially strong market driving prices of all metals.

What Bitcoin ETF approval could do to Bitcoin?

When Gold ETF  was approved, prices of Gold soared to 5x the highest from the price at the time of launch. We could expect the same for Bitcoin. Bitcoin’s prices could soar up to 5x from its current price, which means Bitcoin might touch $200000-$300000 mark by the end of year.

Bitcoin ETF approval will open doors for other precious cryptocurrencies such as Ethereum, Ripple as well and it could create an entire new Cryptocurrency backed Etf market.