Bitcoin

bitcoin: Can Bitcoin be the new gold that funds your future?

The onset of the festive season sees an increase in investments in assets like gold. Bitcoin is often referred to as “digital gold” by supporters who feel it can provide a store of value just like bullion. Similarities like limited supply and worldwide acceptance show that Bitcoin is on the path to becoming an attractive option but it has to undergo its own trajectory to emerge as a strong competitor to gold.

Earlier this year, Goldman Sachs in a note made a strong pitch by comparing Bitcoin to gold. The note said Bitcoin could be the new gold and in the coming years, it has the potential to grow 2.5 times its current value. The note further added that the organisation sees Bitcoin as having applications beyond a store of value. By definition, a store of value is an asset that has the potential to maintain its value over time, such as oil and precious metals.

It is important to understand why Bitcoin is being compared to gold in the first place.

Both gold and Bitcoin are in limited supply. While gold has been in use for centuries, it is available in a finite supply. Similarly, the total number of Bitcoins that can be mined is exactly 21 million, ensuring its perpetual scarcity as demand rises.

Factors like worldwide acceptance also play a role. Multiple countries are now starting to accept the use of cryptocurrencies like Bitcoin. While it may still be early, it is a definite factor of comparison.

According to JP Morgan, both Bitcoin and gold share other common characteristics such as durability which make them hard to destroy, portability which makes them easy to store and transport along with verifiability as both have recorded transactions. As an asset, both have a part to play in times of need.

Historically, gold has played an important role in times of crisis. During wars, when people used to migrate, they used to carry their gold with them. Similarly, Bitcoin supporters have spoken that during a crisis, they have been banking on their investments in cryptocurrency.

If you look at the history of gold, it has withstood the test of time. Gold has been used for 1000s of years, has become a world standard and as an asset, it is known to maintain its worth. Since the 1870s, it has been used as the basis for the international monetary system. In comparison, for Bitcoin, it has only been 14 years and a year or two since a few countries have started using it as a standard thus making its use limited.

Over the last month, Bitcoin has seen changes that are a part of the bull and bear cycle showcasing frequent changes. Coins like Bitcoin and Ethereum have also been showing strong linkages with NASDAQ-listed technology stocks that are both responding to changes in the global geopolitical situation along with inflation-related macro news.

Bitcoin as a technology is currently developing and in fact, is still early in its maturity curve. Unlike gold which is known to be broadly non-volatile, stable, true value of money and has borderless acceptance, Bitcoin still has to go through a lot of testing in areas like security. There is every possibility that in the future Bitcoin is more stable than gold but every technology needs time to mature and stabilise.

(Prashant Kumar is Founder and CEO at weTrade.)

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