Pundits Claim Bitcoin is the Same as Investing in Gold
As a Bitcoin enthusiast, and owner of more than one cryptocurrency, I like that more and more people are talking about Bitcoin in general. However, as a person who started out working at hard labor jobs (digging ditches, roofing, and carpentry, to name a few) to sitting behind a desk leading people, products, and projects, I intimately know what it’s like to work extremely hard for the money my family has. I would be remiss in my duty as a person who knows how shockingly damaging bad investments can impact a working family, if I did not make a few important points as to how investing in Bitcoin is very different than investing in Gold.
To begin with, I think it is important to say that I am not calling the pundits fools. There are some interesting and important similarities between Bitcoin and Gold. These similarities include that they are both rare and useful in their own respects. It is these very similarities that are tripping people up into equating the two as similar investments. They are not fools! Perhaps, they just haven’t thought through it enough to realize the differences, and that it is very important they understand these differences. Real families, with real money precious to their and their children’s futures, may invest in Bitcoin as an investment strategy. Meanwhile, the institutional investors, and the banking and finance industries, are treating Bitcoin as a high-risk asset, while Gold is often treated more like a commodity... or at least something different than other traditional investments.
Two Unusual Investments
Gold and Bitcoin can be considered similar in that they are both unique investments. There are those who have argued that both Gold and Bitcoin can be viewed as commodities. The jury seems out right now as to whether the government and the markets will finally decide whether Bitcoin is a commodity or a currency. One school of thought, however, is that Gold is not a commodity, because it does not act like other commodities in the market, as they react to the economy overall. A great article called “Gold: a Different Asset Class” by Adrian Ash (see link below) seems to shows that Gold does not correlate economically to other commodities, and thus, it is something different. In the article, Ash quotes a study that concludes, because of this, Gold “may be an effective portfolio diversifier.” Again, this may be similar to Bitcoin in that Bitcoin is a different type of investment, but there are some very important differences between Bitcoin and Gold.
Unique or Not Unique – That is the Question
The most obvious difference between Gold and Bitcoin is that Gold is a physical noble metal and Bitcoin is… ethereal. Bitcoin doesn’t physically exist. It is bits and bytes of data stored securely on decentralized devices connected to the Internet. This is important to note because keys reasons Gold is valuable are some of its physical properties. Gold is beautiful and retains its beauty due to the characteristic of it being highly resistant to corrosion. Gold is highly conductive. It is also malleable and can be plated or sheathed down to a staggering thinness, yet retain its electrical conductivity and material bond. This makes Gold a fantastic candidate for use in computers and electronics. Add to that the fact that Gold is rare, and you have something of high value.
Now, although Bitcoin doesn’t physically exist, it has been argued that it is useful and rare. Both of these arguments are true. There is, however, the undeniable reality that Bitcoin is different than Gold in its usefulness and rarity in one very real way. Gold continues to be unique, while Bitcoin is not... not anymore.
One can make an exact copy (called a fork) of Bitcoin, name the copy whatever they want, and release another 21 million of them. Truly, they can release any number of them; thousands, trillions, or even quadrillions of them, and they can be used the exact same way Bitcoin is used. In fact, there are literally thousands of cryptocurrencies now, and more on the way, that have split up the cryptocurrency and blockchain technology markets into diverse subsets that cryptocurrency investors are watching very carefully.
You cannot instantly make a copy of Gold, improve on its usefulness, and call it Ethereum. Gold is Gold and there will never be another one like it. Because of this ability to fork Bitcoin and make a new cryptocurrency, no one can guarantee that in a few years Bitcoin will be worth $20,000. Nor can they guarantee Bitcoin will not only be worth $10. Hence, it is no longer unique. While no one can guarantee Gold will be worth $20,000 either, the uniqueness of Gold has proven its value throughout history.
Cryptocurrency is Different than Gold
The many forks (copies and changes) in Bitcoin/cryptocurrency and its valuable underlying Blockchain technology have become a divided and diversified market. While there is no perfect substitute for Gold, we have perfectly substituted Bitcoin with a better version of it. It has been done. And since this has been done, it can be said that Bitcoin’s current high value may have more to do with the marketing concept of being the first (“the law of leadership”) than its uniqueness as a technology.
While high risk can lead to high returns, I will only recommend investing in Bitcoin, or any other cryptocurrency, with money one is willing to risk and potentially loose almost completely. While Gold might still seem a risky investment, I am confident Gold will still be of high value in the future due to its uniqueness that can’t be duplicated. For this reason, while investing in Gold can still be considered a risk, Gold is a very different investment than Bitcoin, or cryptocurrency in general.
Does a high-risk asset sound to you like something a working class investor should throw their hard earned dollars into?
Links:
“Gold: a Different Asset Class” by Adrian Ash
https://www.bullionvault.com/gold-news/gold_asset_class_investment_commodity_currency_110520073