Buy gold, bitcoin or both?

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For many people the allure of gold is hard to resist as the world’s oldest and best known reserve asset, if you have bitcoin or crypto gains that you would like to convert to gold, you need to get familiar with Vaultoro!

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Bitcoin is ‘digital gold’

The rapid growth of bitcoin and other cryptocurrencies has been hard to ignore in recent years. Bitcoin in particular, has had truly incredible gains, which makes it pretty much the best performing asset by far over the last 10 years.

Although described as a digital currency, many in the crypto community describe bitcoin as ‘digital gold’, because many feel that bitcoin works more as a store of value like gold rather than use as a currency, by using bitcoin for daily transactions.

If you were lucky enough to buy a reasonably large amount of bitcoin in the early years of bitcoin’s inception, then, as most people know by now, you would have made some substantial gains. Even with these price gains, bitcoin has, and still is, particularly volatile when it comes to the price of bitcoin compared to gold.

As time has gone by you may have lived through the ups and downs of bitcoin fluctuating widely in price. This may have lead you into researching the value of currency and sound money (money not liable to sudden appreciation or depreciation in value), along with its ability to be a reliable store of value over time. 

Gold has many similar qualities to bitcoin in the fact that physical gold, like bitcoin, offers you the opportunity to store your wealth outside of the standard banking system. 

Gold is used around the world and is recognised as a valuable asset for preserving wealth. Gold is always in demand. 

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Bitcoin and crytocurrency popularity in the mainstream

Bitcoin is also used around the world, anyone with access to a phone and the internet can essentially download a bitcoin wallet or sign up to an exchange and start to buy and use bitcoin as they please. Currently, in 2020, bitcoin still has a growing demand, with bitcoin now becoming more mainstream due to improvements in the perception of cryptocurrency in general and improved technology. All this matched with the current volatility in the financial system globally, is turning more and more mainstream individuals towards discovering the power of bitcoin.

When it comes to price, gold will never go to zero like many paper assets.

Physical gold coins, for example, are an ideal alternative to printed fiat currency. Bitcoin can also be viewed as an alternative to printed fiat currency. However, there is still an inherent risk of the value of bitcoin dropping dramatically, or even going to zero, simply because it is still a relatively new technology. It is still not clear if another cryptocurrency might come along and essentially take over as the dominant crypto coin.

With this in mind, gold is a good option for investors as physical gold has been a strong and reliable store of value for centuries and, therefore, has a lot more history than bitcoin. You can argue that the further you look into the past, the further you are able to look into the future. Gold has been used in the monetary system for years, so you can see how the price of gold reacts to political or financial fluctuations, and roughly gage what is going to happen to the price in general moving forward.

Although bitcoin has enjoyed fantastic price gains, it has still only been around for just over 10 years, so it is incredibly difficult to predict how bitcoin might react to the political or financial fluctuations in the future.

Bitcoin as a hedge against banking and financial crises

Many fans of bitcoin are often drawn to cryptocurrency because of lack of faith in the banking sector, or even lack of faith in governments. Gold also has these same unique features, which makes it ideal for people who might have made substantial gains in bitcoin but now want to diversify into another asset class such as gold. Gold can help diversify investment for crypto fans, while still maintaining their own integrity as well as fending off general worries or concerns about the banking system, or government interventions in the monetary system.

More and more online gold and silver bullion dealers now accept bitcoin as a form of payment. There are even some websites that actually specialise in selling physical gold and silver for bitcoin and other cryptocurrencies, such as litecoin, bitcoin cash, ethereum, eos, ripple and dash. All you need is a Bitcoin wallet or an exchange to pay for your gold or silver with bitcoin or other cryptocurrencies.

With the explosion in virtual currency and more of our time being spent online, many may choose to offload some bitcoin or other cryptocurrency gains, by exchanging virtual currency for something of physical value that such a person can touch with one’s own hands in the physical world, using gold as the investment choice.

If you buy gold with bitcoin, then you are essentially making yourself less exposed to the volatility of bitcoin, as gold has proved to be a stable and reliable store of value for centuries.

If you want to convert your virtual savings into a more physical asset, then physical gold and silver could be the perfect investment option.

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Due to more online precious metal dealers now accepting bitcoin as a payment method, you now have the opportunity to completely bypass the fiat currency system and buy gold, silver and other precious metals with bitcoin, which is truly revolutionary. You can now earn bitcoin online, and buy physical gold and silver that can be delivered directly to your home with no bank or fiat currency involved.

There is also the added value of bypassing standard credit card and transaction fees. Yes, there are obviously fees involved when processing a payment with bitcoin. However, especially for large purchases, a transaction to buy gold or silver with bitcoin could cost considerably less in transaction fees than if the same payment was made with a credit card.

Pros and cons of bitcoin vs gold

Let’s break down the individual pros and cons of bitcoin and gold.

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Safety and Security

Depending on where you store your precious metals such as gold and silver, both are generally hard to steal, as most people store gold and silver in private secure vaults. Some with 24-hour security and other highly secure measures. Gold and silver are also hard to fake as there is a very robust and well established system in buying, selling and dealing with precious metals. However, if you do decide to store your gold and silver, say at home, and start telling your mates online or down the local pub, then expect some obvious security vulnerabilities that could lead to your gold and silver being stolen.

Bitcoin is also very secure, it is extremely difficult or almost impossible to corrupt due to complicated algorithms and the use of blockchain technology. The main issue with safety is your private bitcoin key. Only you should have access to that key code. Either on a digital wallet or even printed out on a piece of paper, stashed in a draw. If you lose that key, that’s it. Your bitcoin are lost forever until you find that exact key code again.

Also, if you use a bitcoin exchange, that is different to a bitcoin wallet. If you keep your bitcoin on an exchange, then that exchange could be hacked or the exchange itself could go bust. Having your bitcoin in your own bitcoin wallet or key is much more secure.

Liquidity

It is fair to say both gold and bitcoin are liquid assets that can be traded on an open market and exchanged into fiat currency very easily.

Volatility

Whichever way you look at it, there has been quite a lot of volatility in the price of bitcoin, swinging from a peak of almost $20,000 per bitcoin at the end of 2017, to now hovering around $9000 (June 2020). Currently, bitcoin has not managed to get back to its previous heights but we are still in the very early stages of cryptocurrency in general and mass adoption is still to come. Either way, bitcoin it susceptible to severe fluctuations in price, often to do with news about exchange bans in certain countries, or developments such as the recent bitcoin halving, pushing up the price.

Gold on the other hand, has much less volatility. Because of its history as a store of value, gold has remained reasonably stable and has at least kept up with the rate of inflation.

Bitcoin and Gold are rare which makes them both valuable.

Both bitcoin and gold are rare because both have to be ‘mined’. Gold uses a huge amount of labour and infrastructure for physically mining gold. Bitcoin on the other hand uses huge amounts of electricity and computing power to mine each bitcoin. Bitcoin is scarce, there will only ever be 21million bitcoin that will exist in the world, that’s it! As of 2020, 85% of the 21million bitcoin have already been mined. In theory this makes existing bitcoin more and more valuable as time goes on. It is unknown exactly how much gold is still to be mined from the earth, however, it is becoming more and more difficult and expensive to find gold. This makes both gold and bitcoin valuable for different reasons.

Gold is not only used as a safe and secure store of value for investors, it is also used for luxury items such as expensive jewellery, and is also used in electronics and other modern technologies.

Bitcoin also has value in the fact that you can send a large or small amount of bitcoin to anyone, anywhere in the world, for a minimal transaction fee. It opens up the whole world to access sound money. Many people across the globe have difficulty in obtaining a bank account, or have difficulties in accessing the banking system in their own countries. Bitcoin can help people in these poor or remote regions to have access to a secure payment system, and begin to trade and set up business using bitcoin as a payment method. All they would need is a mobile phone and they can send or receive bitcoin as a payment for goods or services in their own country, or send bitcoin to loved ones in another country, who can then exchange the bitcoin into their own local currency if they wish. This opens up bitcoin’s true potential as a viable alternative to the current banking system.

The fact that bitcoin is capped at 21 million, and the added fact that recent data suggests around 4 million bitcoin have actually been ‘lost’, then the scarcity of this digital asset is hard to ignore. Many speculators in the cryptocurrency space are still calling for the price of bitcoin to go much higher.

Gold has more history.

It has well-established trade links, it has standards and regulation such as the LBMA (London Bullion Market Association). The history of gold and it’s value has been thoroughly researched through legitimate sources in articles and charts for many decades.

Either way, if you are a crypto fan or a gold bug, both have similar qualities and values that can work in harmony with each other, and it is always best to have some diversity in your investment portfolio, even if it outside the standard investment portfolio structure, such as stocks and bonds.

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