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Those who support Bitcoin often describe it as “digital gold,” but what is the long-term investment potential of BTC?

 

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Several financial analysts have recommended investing in gold to protect against volatility and a possible decline in the value of the U.S. dollar in light of the emergence of inflation readings exceeding those of forty years ago.

It has been called “digital gold” for years by crypto traders, but is Bitcoin (BTC) a better investment than gold? We’ll examine some standard arguments investors use to praise gold as an investment, as well as why Bitcoin might be a better long-term choice.

 

Value retention

Gold and Bitcoin share the virtue of holding their value through times of economic uncertainty, making them popular investment choices.  

Gold has historically been one of the most effective wealth protection and, as a result, has been well documented, but its value does not always persist. There have also been long periods of decline in gold prices, as shown in the chart below.

Gold price. Source: TradingView
Gold price. Source: TradingView

 

People who bought gold in September of 2011 would have needed to wait until July 2020 to get back to even, and if they held on to the investment, they would once again find themselves near even or underwater.

Over the past three to four years, Bitcoin’s price has never reached its all-time high in more than three to four years, indicating a longer-term outlook for bitcoin could be favorable.

 

Bitcoin could be a better inflation hedge?

Due to its price rising along with increases in living costs, gold has historically been seen as a good inflation hedge.  

Gold has gained 21.84% over the past two years, while Bitcoin has increased 311%. Take a closer look at the gold chart compared with the Bitcoin chart.

 

Holding an asset that outpaces inflation in a world where living costs are increasing faster than most people can handle contributes to wealth growth rather than its preservation.

With a long-term time horizon, Bitcoin still appears to have provided investors with significantly more upside than downside in 2022.  

 

Also read: The crypto hedge fund moves $60 million in Ethereum to an exchange, which raises fears of a sell-off

 

Geopolitical uncertainty could make bitcoin look like gold.

When tensions rise, people have been known to invest in gold, which has served as a crisis commodity for many years.

“Considering that gold is called the crisis metal, I expect its price to go up if we enter another recession.”

Carrying valuables is risky for those living in conflict zones or other areas where there is instability, as their assets may be seized or stolen.  

Those in this situation have an easier time travelling with Bitcoin due to the convenience of memorizing a seed phrase and not having to worry about losing their funds. They can then reconstitute their wallets and access their wealth once they reach their destination.

A decentralized marketplace like LocalBitcoins and peer-to-peer exchanges, including those based on the digital nature of Bitcoin, provide more significant opportunities to acquire Bitcoin.

 

The dollar value keeps declining

It is not always the case, but the U.S. dollar has been vital in recent months. Gold and Bitcoin are among the investments that investors flock to when the dollar value declines against other currencies.

Several countries may flee the dollar as they move toward multipolarity to remain competitive. Still, those funds won’t go into weaker currencies.

For millennia, gold has been an asset valued in our digital society. Still, it is not as widely used or accepted as it once was, and most young people in the younger generations have never even seen gold coins.

This cohort of Internet users is more familiar with Bitcoins, which can fit seamlessly into digital lifestyles without requiring extra security or physical storage.

 

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After years of declining production, gold is considered a good investment because of its scarcity and supply constraints.

In 2008, central banks significantly slowed their gold sales, indicating rapid supply increases were unlikely. New mines take five to ten years to reach production, so rapid increases in supply are unlikely.

 

 

In any case, gold is estimated to be in the ground for more than 50,000 metric tons, which miners would be eager to extract if gold prices increased substantially.

By contrast, the number of Bitcoins ever produced is fixed at 21 million, and issuance occurs at a predictable rate. With the public nature of the blockchain, it is possible to determine the location of every Bitcoin. 

In reality, it will never be possible to locate and verify every gold store on this planet, so we can never know the actual quantity of gold. This makes Bitcoin one of the shortest forms of money ever created and the hardest currency to create. 

 

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