Is Bitcoin Boom a ‘Better Gold’ or Just Another Bubble?
Last year was full of surprises, we can all agree on that. One of those surprises happened in October, when JPMorgan published a global markets strategy note, pointing out that the gold will suffer for years just because of Bitcoin. Slowly but surely, money has poured into Bitcoin funds instead of gold and experts can’t see the end of that anytime soon, according to Nikolaos Panigirtzoglou.
We will take you back to 2010 for a little bit, just to remind you how everything started. Back then, the price of Bitcoin was less than one cent. Now, the price passed $38,000. At the beginning of this year, this cryptocurrency was worth above $40,000 for the first time in history and this means that Bitcoin doubled in less than a month. So, it’s more than clear we are not talking about just another bubble.
Since the pandemic started, in March 2020, the price of Bitcoin jumped by more than 700 percent. There are many reasons behind this incredible growth, but one of them is the fact that some of the biggest companies (PayPal Holdings Ltd, for example) let customers use it as one of the payment methods. Unlike gold, Bitcoin can be used to pay for some services or goods which raises its popularity among traders, although this is not a currency you can physically hold in your hands.
Why Do People Compare Bitcoin with Gold?
Gold is an asset that has a 3000-year-old record of purchasing power. Still, in 2020 Bitcoin performed almost ten times better and that shook the market a bit. This performance led to speculations that the “digital gold” will become much more popular than the physical one and that’s where comparisons began.
First of all, both assets are transparent and safe. We are talking about established systems for trading which are very hard to steal thanks to encrypted, decentralized systems and complicated algorithms. Liquidity is another thing that connects them. Both Bitcoin and gold have a liquid market where fiat currency can be exchanged for them.
Lastly, we can talk about the baseline value. It’s an undeniable fact that gold has tremendous baseline value. After all, it’s been used for so many things, from luxury jewelry to electronics, and throughout history, we cannot find a single period where gold wasn’t at the top. You might be surprised to hear, but Bitcoin also has excellent baseline value. With it, people can send value all over the world with very low fees and that gives Bitcoin a big potential for the future.
Of course, those are not the only things that create a connection between gold and Bitcoin, but we added enough of them for you to realize why Bitcoin is called the digital gold and why this is not just another bubble.
The Bottom Line
So, is Bitcoin a better choice than gold? Well, you are the only person who can decide that. Yes, Bitcoin is pushing down the price of gold dramatically but it’s still a thinly traded market, especially compared to gold. That said, you need to be sure about your trading goals. Are you looking for short or long-term potential gain? Things might change in the future, but for now gold is a stable investment and a better long-term run mainly because its price often rises when the economy is in recession.
The thing is, one part of Bitcoin’s popularity lies in the fact that none of the government bodies or their monetary policies controls it and its supply is very limited, perhaps even more than gold. But the one thing we can say for sure is that Bitcoin has tremendous potential and there is a solid reason for comparison with gold. After all, an analyst from Man Group wrote one sentence that might describe this situation the best: “Every time a Bitcoin bubble bursts, another grows back to replace it.” So, even if this turns out to be just another bubble, there is no doubt it will be beneficial to Bitcoin and traders