Since its birth, Bitcoin has been in the news and attracted millions of people. The value of Bitcoin has increased in past few months and more people are trying to purchase it in order to save their investments. However, there has been a question that will Bitcoin replace gold? German Goldman Sach has in his latest study “Fear and Wealth” found out that gold is better than Bitcoin. He talked about the issue in details and proved gold value will be better than the later. Examining gold and bitcoin against the key characteristics of money, the report concludes that “Precious metals remain a relevant asset class in modern portfolios; despite their lack of yield…They are neither a historic accident nor a relic.”
Goldman Sach judged the two in terms of four factors; durability, profitability, intrinsic value and unit of account. His research noted concluded why gold was adopted as currency remain valid today. He cites that fear is a short term factor of gold value increase while wealth is the long-term driver and he believes as the level of uncertainty increases, the investors increase their exposure to gold. This debate is really important in light of bitcoin’s latest rise in value. At the moment, bitcoin holds more than $100 billion of market cap and it’s inevitable that it will continue to grab attention in the future too.
The first record of gold being used as money is from around 700 B.C. when the Lydians combined it with silver, to form electrum coins. Bitcoin’s role as money is one which is still being established. Many of the problems it faces are down to infrastructure and price volatility. Goldman Sachs addressed the main characteristics that make a medium of exchange and found gold to outperform bitcoin.
Findings are summarized as follows:
When it comes to durability, gold wins over the cryptocurrencies. This is important to understand when it comes to long term storage because these currencies are more vulnerable to hacking than gold. In case there happens such an incident, it will cause a big crisis.
Transferring bullion can be expensive, given its weight, need for a high level of security and high import taxes in some countries, such as India. In contrast, it’s much faster and cheaper to move bitcoins.
When compared, gold and other precious metals are limited in this world where other cryptocurrencies can have other alternatives. In short, Sach believes there is no control over these currencies and will lose their value due to other alternatives.
Unit of account
Gold is better at holding its purchasing power, and has much lower daily volatility. Bitcoin/dollar volatility has averaged almost seven times that of gold in 2017, the bank said.
As throughout history, gold remains a vital store of value. Is role as money and as a safe haven continues to be proven thanks to the actions of central bankers and those using technology to affect monetary markets.