Physical Gold Value Vs Bitcoin Value
Stability: Physical Gold or Digital currency?
Bitcoin is currently enjoying unprecedented visibility and even recently enjoyed the spotlight on a popular network sitcom. More and more respected businesses, including APMEX, have begun accepting Bitcoin as a payment method, providing cryptocurrency with greater legitimacy and buying power. This is great news for Bitcoin and its early adopters. However, cryptocurrency is not without its risks. The importance of understanding the instability associated with Bitcoin and other cryptocurrencies cannot be overstated. After all, it is your money at stake.
Bitcoin and Fiat Currency
Bitcoin often appeals to those who worry about the collapse of fiat currency and wish to provide themselves a hedge against that possibility. Hedging against financial uncertainty is wise, but the wisdom of using Bitcoin as your hedge is still in question. First of all, cryptocurrency has more in common with fiat currency than you might imagine. Fiat currency is by definition legal tender not backed by a physical commodity. The United States eschewed the Gold Standard in 1971, meaning the U.S. dollar has not been backed by a tangible resource since then. In fact, there is no major currency backed by a physical asset anymore. This is something Bitcoin and fiat currency have in common.
The dollar’s purchasing power has declined since being divorced from Gold, while the price of an ounce of Gold still retains roughly the same relative buying power. In 1940, a fine men’s suit cost about the same as an ounce of Gold, just as it does today, while the number in dollars has skyrocketed. The finite Gold supply has a great deal to do with this. Bitcoin has an artificial cap set at 21 million possible Bitcoin mined, but the key word there is artificial. That cap could be lifted and the buying power of Bitcoin might possibly go into freefall. The price of Gold varies, but it is not extremely volatile and its value stays about the same over the long haul. Gold can be your safe-haven asset.
Bitcoin vs. Gold: Stability
Gold has intrinsic value and many applications besides currency, to the point that currency isn’t even its most general use anymore. Bitcoin, however, is only currency, which means it is entirely lacking intrinsic value. This may seem like no big deal, especially looking at the parallels between Bitcoin and fiat currency, but if we shift the discussion to investment products and true wealth, this difference becomes crucial. If you hold physical Gold or any other tangible Precious Metals assets, you have something with enduring value. While you might like Bitcoin for privacy or even just for the thrill of being in on the newest way to do business, Bitcoin is extremely volatile. It has enjoyed explosive growth, which is exciting to watch, but that also sets it up for a dramatic bust. Gold, on the other hand, essentially cannot go bust. Physical Gold is in demand in many industries, such as the medical and electronic fields, and it is always in demand for fine art and personal accessories.
The Gold Metal Market
There will always be a market for Gold. Gold can provide a protective hedge against volatility, while Bitcoin seems to be comprised mostly of volatility. When you seek a safe-haven asset that will, at minimum, retain its value when all else fails, Gold is truly the Gold standard.