Note: This post has been written by Rony Roy as a part of the “WazirX Blog Contest”.
Grayscale aired a television advertisement in 2019 that sparked some debate. The ad urged investors to abandon Gold in favor of digital currencies such as bitcoin, which were dubbed the ‘future.’
“Why did you invest in Gold? Are you living in the past?”the advertisement asked, igniting waves of debate among the finance crowd about what was considered old and what was considered new.
While this could just be interpreted as a funny advertisement that garnered notice, it does point to a long-running argument between those who value tried and proven investment vehicles such as Gold and those who prefer newer, more innovative ones such as bitcoin.
The (Old?) Gold Standard
For proponents of Gold, the asset signifies more than just a store of value. It embodies a wealth security norm that has been in use for hundreds of years, stretching all the way back to before the Middle Ages. Since before the Industrial Revolution and throughout the global wars, Gold has been utilized to ensure the stability of entire nations. Simultaneously, Gold has lost some of its usefulness as a benchmark over the last few decades. In 1931, the United Kingdom abandoned the gold standard, and the United States did the same in the early 1970s.
This is not to say that nobody buys Gold anymore, as many people certainly use Gold as a store of value for its many benefits. This includes being able to trade it practically anywhere around the globe and being able to move it physically. Perhaps the most compelling reason for gold enthusiasts is that Gold may often operate as a hedge against inflation, and it is not uncommon to find personal safes loaded with gold bars that will retain their worth for decades to come.
Lovers of Gold also often take jabs at bitcoin and Cryptocurrency as a whole as inferior to Gold. A couple of points are constantly made, which are that bitcoin is too erratic in its price, does not have the long-term trust associated with Gold, and so on.
Bitcoin vs. Gold
In terms of price stability, Gold might have an advantage in that it is not nearly as volatile in price as bitcoin, and it is not necessarily the beacon of price stability either. A look at the history of gold price in the last 10 years will show that while it started out being worth over $58,000 per kg in 2012, the price took a decline in the mid-2010s but has since risen back by 2021.
Bitcoin, however, often sees wild price fluctuations. While this does not necessarily make it the best hedge against inflation, it is easier at least in the short term to make money from a bitcoin investment.
However, when it comes to gains, the flagship cryptocurrency has greatly outpaced the precious metal. Consider the figure below, which was provided by cryptocurrency media outlet Coindesk. This graph compares the performance of a dollar invested in Bitcoin in 2010 to the performance of the same dollar invested in Gold. The data doesn’t quite lie, and the stats clearly favor the largest Cryptocurrency in terms of market capitalization.
For bitcoin lovers, the appeal of the token in the first place is that it is decentralized and offers a certain level of freedom from government oversight in a way that Gold does not. There is also the fact that it is relatively easier to move bitcoin from one country to another compared to Gold.
Overall, it seems that Gold and bitcoin might cater to different audiences as older people tend to value the long-term stability of Gold while younger people are more drawn towards the potential of blockchain technology and the newness of bitcoin.
Both Gold and Cryptocurrency have their differences, and while they might not be on the same wavelength, they may not necessarily need to be in competition per se. Most financial advisors would tell their clients to diversify their portfolio, with a mix of more stable investments as well as ones that carry a bit more risk like bitcoin, meaning investors do not necessarily have to choose between the two. There are even cryptos that are backed up by Gold, allowing investors to buy into both the old and the new at the same time.
To wrap it up, I would also like to add this infographic published by Philipp Sandner on Medium to rest my case. This is a comparison between three means of wealth exchange: Gold, Fiat (Euro), and Bitcoin.
Gold might represent an older and more ‘reliable’ investment vehicle, but bitcoin represents something entirely different, and this difference between the two might actually be a good thing for investors.
Author: Rony Roy
Rony Roy is an electrical engineer who turned tech author in the Cryptocurrency space. He got block-chained in 2012 and fell in love with tech and its use-cases and has been writing his way through problems since 2016.