Ever since the cryptocurrency Bitcoin (CRYPTO: BTC) exploded onto the mainstream investing consciousness, it has been compared to gold. Some investors even call Bitcoin ‘digital gold’, an alternative to the yellow metal for a modern world. After all, gold has been mined, collected and stored as an investment or store of value of thousands of years of human history. Bitcoin has been around since 2010.
So gold and Bitcoin do have some similarities. Both are finite and scarce commodities. Everyone knows gold is a rare metal. And there are only 21 million Bitcoins that can ever be mined. Because of this scarcity, many investors often claim that Bitcoin has the same inbuilt protections against monetary debasements like inflation or deflation.
Bitcoin is also often touted as an alternative to gold because of its decentralised nature and fungibility. Governments have little control over Bitcoin. And it can be used in a similar way with a consistent value anywhere on the planet. The same is more or less true for gold.
So is Bitcoin really the 21st century’s answer to gold? A decidedly medieval investment by comparison?
Well, one expert doesn’t think so.
Bouris: Bitcoin doesn’t shine up to gold
Mark Bouris is chair of the financial services group Yellow Brick Road. According to a report in The Australian today, he has a rather strong opinion on the idea of Bitcoin as digital gold.
Mr Bouris told the Australian that gold “has shown a consistent trajectory over the past few decades, and as a physical asset it tends to hold its value”. But in contrast, he sees cryptocurrencies like Bitcoin as nothing of the sort, noting their “extreme deviations and “lack of pedigree”.
Bouris also pointed to the recent legalisation of Bitcoin as legal tender in the Central American country of El Salvador. He pointed out that Bitcoin crashed by 10% just as it was legalised. “Blockchain technology is pretty cool and could have interesting and widespread applications in the future, but quite simply, it’s volatile,” he said.
The report also quoted the manager of listed products and investment research at the Perth Mint, Jordan Eliseo. Mr Eliseo agrees with this sentiment. Here’s some of what he added:
Gold is seen as the ultimate safe haven, with a multi-millennia track record of preserving wealth… Despite the hype, cryptocurrencies remain a market characterised by enormous volatility, and have so far failed to act as safe haven asset in the traditional sense over the last 10 years.
So it appears that opinions on just what Bitcoin can (or should) be used for do differ wildly around the world. It seems only time will tell which clothes Bitcoin will end up wearing. It could well be digital gold, a currency or a speculative asset. Or it could end up being… er, rat poison, as Warren Buffett’s right-hand man Charlie Munger once put it.