Bitcoin and gold is rivalling each other for market dominance. While gold has been the age old commodity for investors, Bitcoin has proven to be a new paradigm. The financial system has been revolutionized by blockchain and cryptocurrencies.
Naturally, investors are in a dilemma, finding it hard to choose when it comes to hoarding money. Their mind is bugged by the following doubt like Bitcoin vs Gold- which is the better investment option?
Whatever the questions be, this year will be a game changer. With Bitcoin regaining some of its lost glory, gold will find itself in a much more volatile state as an age old commodity. Read this blog to know:
- Legacy Of Gold As The Historical Standard
- Advent Of Paper Money And It How It Affected Economies
- How Paper Money Replaced Gold As Real Money
- The Inflationary Drawbacks Of Paper Money
- How Bitcoin Revitalized Investors’ Hope
- How The New Paradigm Was Stained By Frauds
- Why Governments Are Hesitant When It Comes To BItcoin Or Gold
- Is Hoarding The New Trend?
- If So, Should We Hoard Bitcoin Or Gold?
Have you ever given a thought to the process of money creation? You might ask “how’s this even relevant?” I’m here to speculate on whether to invest in bitcoin or gold.
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Gold vs. Bitcoin – Is Investing in Gold a Primitive Concept?
However, without knowing how money is created and circulated in the economy, you can never really understand the currency fluctuations, let alone “hoarding” them. Before you start reading, here are some frequently asked questions that might trigger your curiosity:
- Bitcoin Better Than Gold- Myth Or Reality?
- Is Bitcoin Worth More Than Gold?
- Is The New Bitcoin Investment Platform Worth More Than Gold?
So let’s begin,
Gold – The Historical Standard
Throughout much of human history, gold has been accepted as real money. Now, gold is a natural resource i.e. it is limited in supply and hence valuable. You cannot create and issue gold. It has to be mined by a nation in order to circulate it in the economy. Since you cannot tamper with the quantity, no one could ever dilute its volume; thus making it impossible to debase.
However, there were instances where it did face some degree of counterfeiting. The frauds used to take place in mints, where people from the mercantile class used to amalgamate gold coins with less precious metal like copper.
Now unlike gold, copper is abundant. So, by adding a certain percentage of copper to the gold, they were successful in increasing the volume of gold coins in the market. This made gold coins plentiful, hence the value declined rapidly. Many of them were caught in the act, but this practice never ceased to exist.
Enters Paper Money – The Alternative to Oldman Gold
People found that while gold fetched a lot of buying power, it was very difficult to harbor it at times of long distance commutes. Also, people were skeptical of securing gold in their personal vaults, given the rising theft and robbery practices in the middle ages.
The goldsmiths introduced an alternative. They asked people to deposit their golds and take a receipt depicting the amount of gold they’re depositing. Thus, we got introduced to paper money for the first time.
Note that till now, this paper money was backed by gold i.e. you could show the receipt to the goldsmiths and redeem the equivalent amount of gold. Still, this was not free from corruption.
The goldsmiths soon found out that people were comfortable in transacting with the paper money and seldom came to redeem their gold. As a result, they started to lend out more than what was actually in reserve.
The String Severed – Separation from the Gold Standard
When this practice of fractional lending was done for a few decades, it debased the paper money to a level that people panicked and started demanding their gold back. But there were far less gold than what was lent to the people.
Also, it was found that all the gold has vanished overnight, leaving behind only paper money. The few that were left couldn’t be returned to the people as it would create capital disparity.
The government was forced to make amendments to their monetary policy, and they were left with no option but to legalize paper money as the legal tender, making gold irredeemable. Although the sheer volume of paper notes discouraged governments across many nations to shift to the far less valuable paper currency as the real money.
Now, people could no longer redeem their real wealth i.e. gold in exchange for the paper currency. Thus, was born the new monetary system that is functional till date.
So This New System Was Consistent? – Hardly
The issuing power of paper money was handed over to the government. The Federal Reserve and all the central banks around the world issued and regulated the volume of notes. They aimed at stabilizing prices by neither constricting nor inflating the volume.
But history records that Federal Reserve was not always under strict regulation. Private cartels kept laying their hands time and again, thus exercising absolute control over the issuing power. Their sole purpose was profit, and their fraudulent practices of inflating the money supply drowned nations into irreparable debt. Wars were fought over it, depressions were caused.
It is this very practice that leads to a steady price rise. The currency in circulation was much more valuable ten years back than it is today. There was a time when apples used to cost a nickel, now it’s almost laughable to even consider it.
So Did They Reconsider Gold?
There was a period between World War 1 and the depression of the 70s when governments were willing to revert to the gold standard. The paper money system already submerged many nations into debt.
Countries like Germany were severely affected by this inflationary policy that has plagued the economy since it was detached from gold. But the very depression prevented governments to put the gold standard back to action.
Gold vs. Bitcoin- Is Investing in Digital Currency Profitable than Gold?
Fast Forward To 2008 – The Birth of Bitcoin
2008 was the year when the world saw a recession that shattered employment across nations. Governments had enough of the fiat money system and were eager to either go back to the gold standard or invent a new monetary system.
A man by the name Satoshi Nakamoto (although this is an alias, his real identity remains concealed till date) introduced Bitcoin (currently, the best digital currency to invest in). A monetary system based on Blockchain security platform, it was a decentralized system of transaction.
This means that the government has no exclusive hold over. The transactions are stored in multiple devices and secured using modern blockchain encryptions.
Bitcoin vs Gold – Was It A Throwback to The Old System?
To some extent, it was. The newly introduced system differed completely from the paper money. See yourself to what extent is Bitcoin similar to gold.
- Like gold, it was limited in supply
- The fixed quantity makes it impossible to inflate
- As a result, prices remain fixed
- Bitcoin transactions don’t require financial intermediaries i.e. banks
- Unlike gold or paper money, it is protected with Blockchain encryption
While this system was impossible to manipulate, thanks to the Blockchain encryption, cyber frauds still posed a considerable threat to this newly introduced money. There were many instances, where millions of Bitcoins just vanished overnight.
Since it is devoid of government interventions, so no central authority could dispatch investigative teams to track down the lost money. In a way, Bitcoin too was vulnerable to theft.
To Hoard or To Consume?
Most economists would argue that hoarding money affects the economy. Their proposition is that more money hoarded by an individual not only affects the economy but also the person who’s hoarding it. How? Let’s break down:
- At present, governments circulate paper money as the legal tender. But as pointed out earlier, prices keep rising with an increase in the volume of paper money.
- So, the money you hoard today would depreciate in value in the coming years. That means you’d require more money to purchase a certain good than what you require now.
- Many economists thus persuade the public to spend the money instead of hoarding them because as per the current financial system, its value will only decrease.
So going by that logic, it seems foolish to save more and spend less.
But Can They Play The Same Game With Gold Or Bitcoin?
No, for obvious reasons. First, unlike fiat money, gold and Bitcoin are limited by quantity. That in itself rules out the possibility of volume inflation by any private cartel. Second, since both are “mined” for economic usage, the value keeps increasing. Why? Simple. More mining makes Gold/Bitcoin scarcer and scarcer with time. The increase in scarcity comes with an increase in value.
So, if you hoard Gold/Bitcoin, you can, in fact, buy more in the future with the same quantity in your wallet. The mining would make gold/bitcoin more valuable with time, thus encouraging expenditure.
Bitcoin vs Gold – So what’s stopping the Government?
There are certain obstacles for sure. Governments can’t shift the paradigm overnight. Bitcoin is a new system, yet to be regularized by the center, and gold is a ghost from the past that has faced countless human atrocities.
Plus in a democratic economy, it is always the public opinion that drives change. Throughout generations they’ve accustomed themselves with the fiat money; so that by now, the gold standard or even the gold backed system seems far from reality. And bitcoin is not something the public is too optimistic about, given the scams and fraudulent practices that have plagued the world of cryptocurrency since its inception.
In Case Of Gold
After the World Wars, all the gold from most of the countries were migrated to the U.S. Treasury as part of war reparations. In return, the countries received the equivalent amount of paper money (U.S. Dollar) in their sovereign vaults.
This made U.S. dollar the international standard against which the the currency rates are measured, and is the current exchange standard across the world. As a result, countries with dollar reserves faced subsequent booms and busts with the changes in dollar volumes, as now their currencies all were tied to the U.S. dollar.
Many think that it was a conspiracy by some private cartels to concentrate gold into some powerful hands, thus flooding the world with U.S. dollar. Whatever it was, nations even after the wartimes were hesitant to reclaim their gold, fearing it would unleash perhaps a World War 3. Whenever empires tried to reform the economy, they were all plunged into war debts by unknown cartels.
There’s a Shift, However
In recent years though, the world saw many economies reclaiming their gold. How? Because they’ve made tight regulations in money supply, thus managing to pay off the war debts in all these years. Why they are doing this?
Because there’s a general consensus among the economists that the world would face another depression in the coming years. This is inevitable, given the inflationary conditions across the world. Soon, markets would crash, again concentrating real money i.e. gold into fewer hands.
To safeguard against this, many countries like China, Russia, Germany, France, Sweden, etc are demanding their gold to be returned.
In Case Of Bitcoin
Bitcoin was introduced to the public (2009) just after the recession (2008). Many saw it as a means to end the decades of paper money plague. Investors all around the world started considering it as a safer investment option. Plus its value is increased with every mining activity. So, it became the center of attraction in a world tired of booms and busts.
But before the public could get comfortable with the new monetary system, it got stained by multiple scams. Reports started circulating that despite the high-end security system of Blockchain, there were fraudulent practices that led to the disappearance of billions of bitcoins overnight.
As a result, governments started becoming skeptical. Investors and general public could no longer put their faith in this digital ledger system. Worse, the lost Bitcoins could never be found, since the entire system excludes government intervention and hence central investigations altogether. The center has no hold over it.
Plus, last year saw a sudden surge in IPOs, due to which investors shifted their focus from cryptocurrencies and commodities to public offerings. As a result, the Bitcoin value fell to an all time low.
This propelled discouragement among the general public even further. But again this year, there are not many IPOs happening, so investors in search of innovative are reconsidering Bitcoins and other cryptocurrencies, thus re-establishing some of its lost value.
So Should We Hoard?
Given the nature of both commodities (gold) and cryptocurrencies (Bitcoin), hoarding them seems to be the wiser move. Unlike paper currency, they’re free from inflationary practices. Plus their value increases with mining/usage. So you won’t have to worry about your money being debased. In fact, you’d be encouraged to spend more, since you’d be able to purchase more with the same amount of gold/bitcoin in the future.
Moreover, if you pay heed to the rising consensus, there’s another economic depression lurking in the corner; ready to lash in at any time. Therefore you should invest as much possible in Bitcoins and golds to safeguard yourself from this apocalypse.
So if you’re into commodities and cryptocurrencies, start hoarding them already!
Bitcoin Vs Gold: Which One Would Be More Profitable In the Future?
As explained earlier, countries are reclaiming their gold in fear of an upcoming depression. With increasing gold amount in their treasury, it is probably a good time to invest in and hoard as much gold as possible. So that when the depression is over, you can sell them at a higher price.
As for Bitcoin, investors have already started to reconsider it as a better investment alternative. And blockchain security is only getting better with time. But as mentioned earlier, Bitcoin’s value depends on market opportunities and how free it is from cyber theft. Plus governments are yet to legalize them as the public tender, given the dark history of fraudulent interventions.
By now, you must be thinking, is bitcoin worth the investment? Or is it wise to skip gold and buy digital currency?
Whatever be the question, it is true that neither gold nor bitcoin has been free from corrupt hands. Both were subject to scams, loots, etc. Investing in either of them comes with their fair share of advantages and disadvantages.
So should you wait for your country to bring back enough gold for investments? Or should you move on to the new digital money system? Which one do you think is better to hoard?
Featured image source: Freepik