All the gold ever mined could easily fit between the legs of the Eiffel tower – and that’s multiple times. The scarcity of gold is a major factor in its high value. Gold is also a non-reactive metal, so it won’t tarnish. This is very important if you have invested millions in it and don’t wish to see it slowly deteriorate.
As the video below explains, most governments invest some of their money in gold. Gold is a haven during times of crisis. However, gold is subject to normal market fluctuations. The value of Bitcoin will become more stable once it reaches its maximum potential (all Bitcoins have been mined).
What is the amount of gold, and why would it be a good investment for me?
What is Bitcoin?
Bitcoin can be used to make electronic payments and transfers. A growing number of businesses accept Bitcoin as payment. Microsoft already accepts bitcoin through its Windows 10 Mobile platform, and those who shop online at Shopify can use bitcoin to pay.
Bitcoin has also moved outside of the virtual world. The House of Nakamoto opened in Vienna early this year, and it may be the first bitcoin shop in the entire world. The bitcoin ATM allows people to buy bitcoins in euros and vice versa. In Cambridge, drinkers can use Bitcoins to pay for beer in a pub named The Haymakers.
The total number of bitcoins that can be issued is 21 million. In March 2017, almost 16,2 million were in circulation. Bitcoin is programmed in such a way that the supply of coins increases steadily. The “miner”, or anyone who has access to blockchain software and computer knowledge, can be a miner . Each miner adds 12.5 new coins per ten minutes to the supply .
The process of mining is to add transaction records to the public ledger (blockchain) of bitcoin’s past transactions. The Blockchain confirms that transactions have taken place for the rest of the network.
bitcoin had a value almost equal to gold as early as 2013. At the end of 2016, there were US$14bn worth of bitcoins.
What is a good investment?
Digital currencies such as Bitcoin have emerged as an alternative form of money. They’ve also created a niche in the financial industry that is driving innovations such as peer-to-peer lending and digital wallets. Bitcoin is seen as an alternative to traditional forms of money.
Bitcoin is a popular investment that has outperformed gold. Its performance was 155% higher than the precious metal. Bitcoin investment is so exuberant that it outperforms gold, with an annual return of 155% as opposed to 6% for the precious metal during the same period.
Bitcoin may seem like a lucrative investment, but its value is as volatile as gold, depending on how one perceives Bitcoin ownership as a commodity. The encryption of Bitcoins is done for security reasons, but it doesn’t identify the owner. The owner of a bitcoin will be determined if someone hacks into the miner’s system to get a secret code.
Bitcoin, like gold, has the benefit of a limited global supply. This helps to maintain value and is a hedge against market volatility. Shannon Stapleton/Reuters
What is driving the value of Bitcoin as an investment? The increasing demand for developing countries such as Brazil, Russia, India, China, and South Africa is one driver. The local currencies of these countries are volatile and unpredictable due to economic distress in the land and weakening currencies. It’s become more popular to use Bitcoin as a hedge against the paper currency.
A trade war could also be a factor in the rise of Bitcoin. US President Donald Trump indicated that he could impose 45 percent tariffs on Chinese imports. This could lead to a weakening of the yuan and a capital outflow as investors switch to stable currencies like euros.
The rise in the price of Bitcoin during financial turmoil is also a sign that it’s becoming more popular as a hedging tool.
The price of bitcoins increased when Cyprus’s economy crashed in 2013. People began to use other payment methods than the national currency. When the Chinese currency fell in 2015, many people turned to Bitcoin and gold.
After the Brexit vote, the value of bitcoin rose by more than US$100 in comparison to the day before. The main reason for this was that some of the speculative funds flowing out of pound sterling and yuan migrated to bitcoin.
Government support for increased investment
Bitcoin has not only attracted the attention of tech-savvy individuals but also banks, such as Barclays Bank, BBVA Commonwealth Bank of Australia Credit Suisse, JP Morgan State Street Royal Bank of Scotland, UBS, and Credit Suisse. The Government is also supporting the cryptocurrency.
The Australian Government is planning to reduce taxes on bitcoin transactions. The current treatment of digital currency in the GST law results in consumers being “double taxed” when they use it to purchase anything that is already subject to GST. The Government intends to change this.
UK’s Chief Scientific Advisor said governments should use blockchains, bitcoin’s underpinning technology, to help with tax, benefits, and passports.
The US government plans to launch a cryptocurrency that is legalized, called Fedcoin. It can be traded for a dollar. Bitcoin is not legal tender as any government does not back it up.
The price of bitcoin is another factor that has motivated the eagerly anticipated launch of the First Bitcoin Exchange-Traded Fund (ETF). ETFs are investment companies that have no restrictions on how many shares they can issue.
Central banks could launch cryptocurrencies alongside their national currencies. Sergio Moraes/Reuters
The approval of an ETF for bitcoin would make it more appealing to risk-averse institutional investors, as it would provide a way to access bitcoin that is easier than purchasing it directly.
The dominance of Bitcoin is so great that the Bank of England published a whitepaper on the topic. It investigated the possibility of the central bank minting their cryptocurrency.
Bitcoin is more appealing than gold for two reasons. It can be used to make payments easily (for a small but increasing number of transactions), something that gold cannot do. Bitcoins, with a limited supply of only 21 million coins, are more likely to be in demand than gold.
The debate about gold and bitcoin will continue. We can state with certainty that gold cannot be used directly to purchase Bitcoin, but Bitcoin can. Whichever you prefer, it’s up to you.