Bitcoin has been around for fifteen years. Ever since then, it has been the most productive asset of the 21st century, going on a historic run. Throughout this process, investors have struggled to classify Bitcoin and its investment merits. The idea that Bitcoin is similar to digital gold has become one of the most popular and widely accepted narratives.
Is Bitcoin a superior asset than the age-old precious metal, even though analogies to gold help us classify Bitcoin's diverse use cases? A closer inspection reveals that one asset is superior to the other.
The use of gold has evolved significantly over the years. Its primary use for millennia was as money, but in the turbulent 1970s, it also served as a safe haven asset. In the face of double-digit percentage inflation, gold became the go-to way for people to protect their money and fight against the dollar's decline.
Gold deserves a lot of credit for how well it performed. Inflation was rampant throughout the 1970s, but the incredible 700% growth in the price of gold—from $300 per ounce to roughly $2,600—was more than enough to keep up with the market. The story of gold's worth as a store of value probably starts with this decade's results. The reason this story has stuck around, though, is less obvious.
When the decades of inflation that began in the 1970s were taken into consideration, gold's performance was not very impressive. The cumulative inflation adjusted return for gold from 1980 to 2023 is a disappointing -4%. Not really a hedge against inflation, is it?
The decline of gold can be attributed to a number of factors, including a stronger dollar in comparison to the 1970s and more reasonable interest rates, which have encouraged investors to purchase assets that provide dividends. Although identifying the precise cause is difficult and should be left to macroeconomic specialists, one thing is evident: the prevailing story about gold as a store of value is losing steam.
Considering that Bitcoin data is missing from decades, it might be inappropriate to compare gold's performance over 50 years. Now, let's have a look at what's newer. With inflation adjusted for the last ten years, gold has returned 30%. That amounts to a pitiful 2% every year. Bitcoin is another option. The first cryptocurrency in the world has increased in value by almost 3,700%, with yearly returns of 44% even after adjusting for inflation.
Concerning this matter, proponents of gold or crypto detractors typically bring to the fact that Bitcoin's path to historic price appreciation has been marked by considerable volatility. No problem. It is true that Bitcoin's volatility is noteworthy.
Volatility, though, has its drawbacks. The same instability that saw Bitcoin's value plummet by a third every few years is also responsible for its meteoric rise to the position of best-performing asset of the century. The data also shows that Bitcoin's volatility is going down as the asset class becomes older.
Upon further inspection, Bitcoin's erratic behavior becomes an asset. Bitcoin has an outstanding track record and tremendous long-term potential, making it an excellent choice for investors looking to invest over years and decades rather than months.
Bitcoin is a better long-term store of wealth than gold for a number of reasons, not the least of which is its obvious pricing advantage. Its limited availability stands out the most. The supply of gold can be affected by mining activities and new discoveries, despite the fact that it is often believed to be finite. In contrast, the total supply of Bitcoin cannot be altered by any one party; the cap is 21 million coins.
Decentralization and security, which may be Bitcoin's most appealing features, are the reasons it deserves to be regarded as a better kind of gold. Bitcoin runs on a distributed ledger that is updated by computers all over the globe. This means that investors can have peace of mind knowing that their money is protected by an unbreakable network that no government can ever devalue or seize, unlike gold. If you don't know what I'm talking about, Google Executive Order 6102.
An increasingly digital world, where fiat currencies are continuously debased, makes the investment offer of Bitcoin all the more evident. Bitcoin has become the perfect asset to secure and create wealth in today's society, offering its holders genuine financial sovereignty free from monetary manipulation. It has shown to be superior to gold as a store of value.
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