Traditionally, investors and commodity traders have stored their wealth either in property, stocks, bonds, or gold. Gold has generally been a safe hedge against rising prices over extended periods, but digital currencies are a new asset increasingly viewed as a store of value, in addition to being a means of day-to-day transactions. Bitcoin has accordingly gained a reputation as “digital gold.”
Let’s look at the two most prominent options today as we compare Bitcoin vs. gold, and how they stack up against each other when it comes to preserving their value — and investors’ wealth — over the long term.
What Is a Store of Value?
A store of value is an asset that can be reposited and retrieved without losing its value over time.
That’s why people invest in Gold, Bitcoin, stocks, bonds, real estate, and other assets that are likely to appreciate or retain their value as time goes on.
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Factors of Value: Bitcoin vs Gold
Bitcoin and gold both have striking similarities. They both make a good store of value and a haven in a sea of market turbulence. We will examine the factors that give them their value, and decide which is a better store of value: Bitcoin or Gold.
The primary characteristic of a good store of value when assessing Bitcoin against gold is scarcity. If an asset is easy to obtain, it becomes easy to increase its quantity. This causes the price to plummet, making it a poor store of value. On the other hand, when the supply of an asset is limited, increasing demand increases the asset’s price, retaining and growing its value.
A key attribute to Gold is its scarcity, this gives it an edge over other metals and materials as a store of value. Gold is relatively rare, expensive, and labor-intensive to mine and process. Compared to other metals such as silver and copper, which are more abundant and easier to mine, gold is rarer, which has made it the dominant store of value over the ages.
While gold is relatively scarce, Bitcoin is scarce. Only 21,000,000 Bitcoin will ever be in existence, and no new one will be mined ever. Even though gold has been mined for centuries, the earth still holds metal to be mined.
For scarcity, Bitcoin has a fixed supply, and so it’s a better store of value than gold.
Fungibility describes the quality of being mutually interchangeable and uniform, which is a characteristic of a good store of value. This quality facilitates exchange because fungibility means all equivalent units of the asset have equal value and can be exchanged across diverse markets and locations.
Gold is generally fungible — an ounce of pure gold holds the same value as an ounce of pure gold anywhere. But gold with impurities isn’t worth the same as pure gold. It’s not very easy for anyone to test the purity of gold, and there’s the added hassle of using the same measurement standards worldwide.
Meanwhile, Bitcoin is always fungible. One Bitcoin is the same as any other Bitcoin and, even more importantly, cannot be counterfeited. In summary, Bitcoin is more fungible than gold.
A store of value should be easy to split into smaller units for a more accurate transfer of value.
Gold is a dense metal, so a small amount still represents a large amount of value. This makes it hard to transfer smaller units of value, even with small gold coins.
This is why paper money became necessary: it made gold easier to divide into smaller, more exchangeable units. But paper money no longer represents gold, so the divisibility problem with gold remains. Also, dividing gold requires physical effort — melting, weighing, assaying, and minting new coins.
Conversely, Bitcoin has no such problems. Bitcoin can be divided infinitely. A millionth of a Bitcoin is called a Satoshi. Therefore, regardless of how valuable Bitcoin becomes, it will still be possible to use. In this aspect of divisibility, Bitcoin holds the advantage.
Gold is a dense metal and heavy to carry around. Transporting a large amount is expensive, making it inconvenient for long-distance trade. Cross-border regulations concerning gold make it somewhat impractical for international trade.
Bitcoin, in contrast, has no portability issues. As a purely digital asset, Bitcoin, no matter the value, can be stored in a thumb-sized drive or even online, and accessed anywhere in the world with an internet connection.
Transferring Bitcoin is fast and inexpensive. You can safely move an enormous value of Bitcoin in minutes for less than a dollar. This ultimately makes Bitcoin infinitely more portable than gold.
Adoption in Society
Society must accept an asset for it to be a good store of value. Gold has been considered valuable since ancient times by virtually every human civilization, and thus has a great appeal as a store of value. Additionally, gold has practical applications, as it’s used in coinage, jewelry, and electronics.
Meanwhile, Bitcoin has been present for little more than a decade, and while it’s gained an impressive level of adoption in a short period, it’s still far behind gold. Many investors and the general public see Bitcoin as a niche that has yet to be fully understood.
Currently, gold has a market capitalization of approximately $11 trillion, whereas Bitcoin’s market cap is $1 trillion as of April 2021. Gold is more adopted globally than Bitcoin.
The idea of a decentralized currency that isn’t under anyone’s control doesn’t sit well with central banks and governments worldwide. This has led to unfavorable government policies regarding Bitcoin, ranging from strict regulation to outright bans in some places.
No such threat hovers over the legitimacy of gold, making it the clear winner.
With the devaluation of currencies, gold and Bitcoin are excellent hedges against unbridled inflation rates. Gold has been in use for centuries, and is still a good store of value and a reliable asset. However, Bitcoin has the most advantages by demonstrating improved scarcity, divisibility, and transferability. This ultimately positions Bitcoin as the better store of value when comparing Bitcoin to gold.