Since its debut in 2009, BTC has attracted a vibrant core of proponents who are bullish on its prospects of upending gold as a store of value and investment vehicle. The notion that bitcoin is digital gold has taken hold among crypto fanatics who have watched the currency jump multi-fold and achieve increased adoption in recent years.
BTC Goes Beyond Gold
Over the centuries, gold has been seen as a trusted instrument that is perfect for parking money. However, the precious metal is facing competition from bitcoin (BTC), the world’s oldest and most valuable cryptocurrency.
Satoshi’s invention has registered substantial gains over gold and quickly established itself as a leading alternative for those seeking a safe-haven asset. Moreover, the blockchain-based cryptocurrency has demonstrated a relatively low correlation to conventional financial instruments like bonds and stocks, prompting proponents to draw comparisons to gold.
This article examines the properties of bitcoin that have strengthened the “digital gold” narrative and made investors review its value and prospects.
The Rise of Bitcoin as Digital Gold
Gold traditionally served many purposes, including being a medium of exchange, an inflation hedge, and a store of value. This robust utility helped the yellow metal rise to the rank of the most valuable asset in the world.
Similarly, BTC has witnessed a meteoric run over the past decade, constantly knocking milestones and scaling to all-time highs. As a result of its consistent rise, BTC has gained the acceptance of big-money investors, celebrities, banking institutions, and even governments. Moreover, crypto-savvy investors and market observers worldwide have started comparing the digital currency to gold.
Despite being relatively new in the global economic spectrum and lacking intrinsic value, the digital coin has logged tremendous gains and is on course to surpass gold’s market cap by 2030. This unprecedented boom has convinced some BTC supporters that the coin could replace its main rival as the go-to store of value in the coming years.
For instance, crypto bull and MicroStrategy CEO Michael Saylor has been quoted saying that ‘digital gold’ would replace physical gold by the end of this decade. SkyBridge Capital head Anthony Scaramucci struck a similar tune, telling CNBC that bitcoin is set to go up exponentially and replace gold as an inflation hedge.
At the Bitcoin 2022 conference held this past April, PayPal co-founder Peter Thiel told his audience that he expects BTC to rise 100x, eclipsing gold and the entire stock market. These bullish predictions aren’t so far-fetched, given that gold has continued to underperform while its digital rival has enjoyed an annual return of nearly 230% over the decade.
What Makes Bitcoin Similar to Gold?
Bitcoin’s exponential growth over the past few years has given investors access to an asset class that is far more rewarding than gold or other traditional investment alternatives.
Despite experiencing wild price swings over the past few months, BTC has generally snapped back quicker than its rivals. Investors looking to evade runaway inflation are turning to bitcoin as a hedge against market downturns, further bolstering the virtual currency’s reputation as digital gold.
Here is a look at what the largest cryptocurrency has in common with gold and why both assets are a big hit with investors.
Bitcoin fits the Gold 2.0 narrative because the digital currency is a scarce resource, just like its precious metal rival. BTC is designed to have a finite supply of 21 million coins at its code level. By 2140, all bitcoins are expected to have been mined and in circulation.
The built-in scarcity in BTC is a major factor that leads proponents to compare it to physical gold. Even more so, the digital currency is arguably rarer than gold, as the metal still doesn’t have a ceiling to supply.
The rarity factor makes BTC resistant to inflation and allows it to be held outside the legacy financial system. That means that it cannot be devalued by any government or central bank, making it ideal as a store of value.
The narrative of BTC as digital gold hinges on the invention’s value and role as a reliable hedge against inflation. Traditionally, gold has held the title of the best inflation hedge, with a proven record during several periods of economic recession.
BTC is relatively new and has only been tested in the current inflationary environment brought on by the Covid-19 pandemic. Still, the digital coin is being touted as a strong hedge against inflation due to its unique algorithms and decentralized nature.
As researchers from JP Morgan explained in a recent research note, institutional players increasingly prefer BTC to gold as a safe haven asset amid increasing concerns of hyper-inflation.
Both bitcoin and gold are similar because they carry immense baseline value, making them highly sought-after assets. Gold’s value comes from its multiple uses in everything from luxury items to electronics.
On the other hand, BTC derives value from its capacity to revolutionize the monetary system. The coin’s encrypted code and decentralized system are already ushering in a revolution by granting billions of unbanked folks worldwide access to the global financial system.
Bitcoin holds multiple features that make it the perfect candidate to become the gold 2.0 for a new generation of investors. Similar to its well-established metal rival, BTC is a store of value that operates outside the influence of the legacy banking systems and world governments. The coin has also proven its capacity to function as a unit of account and practical medium of exchange.
The benchmark digital currency is engineered at its code level to have a finite supply, guaranteeing holders that it cannot enter hyperinflation. Therefore, the invention holds the promise to take up the role of gold as the primary safe-haven asset.
Compared with gold, bitcoin is still prone to downside volatility, but it ushers in a new era in transaction processing and the global payments network. As the crypto space matures and market turbulence dampens, investors can look to BTC as the new vehicle for value storage that could emerge as the new shining gold.