bitcoin: Could Bitcoin be the new gold that funds your future?
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 memo further added that the organization 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 limited. While gold has been in use for centuries, it is available in a limited supply. Likewise, the total number of Bitcoins that can be mined is exactly 21 million, ensuring its perpetual scarcity as demand increases.
Factors such as worldwide acceptance also play a role. More countries are now beginning to accept the use of cryptocurrencies such as Bitcoin. While it may still be early days, it is a clear comparison factor.
According to JP Morgan, both Bitcoin and gold share other common characteristics such as durability which makes them difficult to destroy, portability which makes them easy to store and transport along with verifiability since both have recorded transactions. As a resource, both have a role to play in emergency situations.
Historically, gold has played an important role in times of crisis. During wars, when people used to migrate, they used to carry the gold with them. Similarly, Bitcoin supporters have talked about betting their cryptocurrency investments during a crisis.
If you look at the history of gold, it has stood the test of time. Gold has been used for 1000s of years, has become a world standard and as a resource it is known to maintain its value. 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 limiting its use.
Over the past month, Bitcoin has seen changes that are part of the bull and bear cycle that shows frequent changes. Coins such as Bitcoin and Ethereum have also shown strong links with NASDAQ-listed technology stocks that both react to changes in the global geopolitical situation along with inflation-related macro news.
Bitcoin as a technology is evolving and is actually still early in its maturity curve. Unlike gold which is known to be largely non-volatile, stable, real value of money and has limitless acceptance, Bitcoin still needs to undergo a lot of testing in areas such as security. There is every possibility that in the future Bitcoin will be more stable than gold, but every technology needs time to mature and stabilize.
(Prashant Kumar is the founder and CEO of weTrade.)
