US market was strong last week after massive selloff due to the Brexit. The concerns based on this economic event were eliminated by the popular explanation which states the benefits for US weigh more than risks. However, along with the riding of the market, gold also achieved a significant gain. It is no common that both the market and gold went up for the last week. Investors are covering the selloff and simultaneously put money into the safe place, gold. However, gold is not the only winner for safe place. Japanese Yen also seized the favor from the market.
Now, some investors mentioned another way to secure your capital under this economic situation which is surrounded by concerns. The bitcoin has caught investors’ attention this year. Price of bitcoin went up more than 50% since January and more than 100% since June, 2015. Like gold, the Bitcoin’s supply is limited. So it’s better to compare with these two and see which one is better to secure the capital.
Medium of exchange
Gold isn’t easy to use in commerce since it’s hard to pay the correct amount with gold. A solution could be to store the gold in a vault and transfer the ownership of gold pieces from the payer to the payee, but then you have to trust a third party holding the gold. Another problem with gold is counterfeits with tungsten. A bitcoin is divisible up to 8 decimal places so it’s never a problem paying the correct amount. You don’t have to trust a third party when using bitcoins and bitcoins can’t be counterfeited.
Unit of account
Gold has been a unit of account for thousands of years, but isn’t used as that today. Gold is priced in USD and we don’t price anything in gold. Nor is bitcoin widely used as a unit of account, but its use is increasing. Multiple web shops are pricing their items in bitcoins instead of USD and other currencies. Bitcoin with its 8 decimal places is a good unit of account.
Gold is heavy and not easy to transfer over large distances without a significant cost. You need to secure the gold when moving it, and it’s not trivial to move gold from one country to another. Bitcoin is very easy to move around. It can be sent all over the world through Internet within seconds, and the cost to do so is very low. Bitcoin doesn’t care about borders. You can even store (the keys to) your bitcoins in your brain when travelling through countries. (How cool isn’t that?)
Gold is one of the most durable substances on earth, it doesn’t degrade and will never go away. Bitcoin exists in a public ledger on thousands of hard drives and other media around the world, and the Bitcoin network can’t be shut down by any government. While in theory Bitcoin can go away, it won’t happen as long as people are still using the Bitcoin network.
Gold is divisible, but it’s not easy and it’s a cost to do divide gold into smaller pieces. A bitcoin is easy divisible up to 8 decimal places.
Fungible (One unit is valued the same as another)
Gold has different value depending on how big the piece is. Smaller pieces is more expensive because of the production cost. There are also price differences depending on the country or mint that issued the coin. The value of one bitcoin is the same regardless if it’s divided or not. The value from one bitcoin divided into pieces has the same value as a whole coin.
Store of value (Limited supply)
Gold is rare, but gold doesn’t have a finite supply. New gold is created in the universe, and in the future it may be possible to harvest asteroids for gold. Bitcoin has a hard limit of 21 million. (Although dividing something doesn’t increase the supply, bitcoin with its 8 decimal places has a hard limit of 2.1 quadrillion base units.)
Based on these aspects, bitcoin seems to be a better choice rather than gold. However, it should be mentioned that most transactions of bitcoin are now dominated in Chinese RMB and it recently will get a spilt reversal which will lift the price up just like the stock spilt reversal. Those could be the risks when invest in bitcoin under this high price.