It’s true: the supply of newly mined Bitcoin and that of gold is very limited. And the production of both “currencies” has a significant impact on the environment. In addition, both Bitcoin and gold largely escape the influence of the international central banks. After all, both systems can be purchased anonymously – at least to a limited extent. And in both cases it is ultimately a kind of substitute currency.
So there are very good reasons to classify Bitcoin as the new gold. Even more: Doesn’t modern blockchain technology fit much better into the digital age than the aging gold that people are drilling and dredging out of old mines?
It is precisely this point that is the most noticeable difference. Bitcoin is only available digitally. This is often the case with gold – for example with gold certificates. But the precious metal is also physically available in the form of coins, bars or jewelry.
Another major difference is age. The starting date of the crypto currency is January 3, 2009. At that time, a so-called Satoshi Nakamoto, the name is considered a pseudonym, launched the new digital currency. Gold has been around for thousands of years.
The history and trust in Bitcoin are extremely short and low. This also explains the enormous fluctuations. When it came to gold, people agreed thousands of years ago to regard the precious metal as valuable – worldwide. A total loss is practically impossible with gold. The precious metal is also comparatively volatile, but the fluctuations are still much smaller than with Bitcoin.
Different price drivers
At the same time, the value of the two “currencies” depends on completely different drivers. In the case of gold, it is less the purchases of the international central banks, as is often claimed. The decisive factor for the development of the gold price is above all the demand for gold ETFs that are backed by physical gold – such as Xetra-Gold, which is extremely popular in Germany, but which, strictly speaking, is a bond.
However, as is so often the case with financial investments, the music plays here with the SPDR Gold Shares in the USA. This represents the largest gold ETF in the world. American investors deal with the topic of gold very differently than, for example, investors in Germany or India. In the United States, gold is an asset class like any other. It is less about storing values and ensuring stability in the portfolio, but more about generating returns. This also explains why gold is currently not performing despite rising inflation. In the current environment, Americans prefer stocks rather than the supposedly more promising precious metal investment.
Bitcoin, like gold, does not generate any interest and brings investors opportunity costs – or, as is currently the case, due to the sometimes negative interest rates, also opportunity gains. However, this only has a marginal effect on the price of the cryptocurrency. Statements and interpretations from opinion leaders such as Tesla boss Elon Musk or Wall Street icon Cathie Wood are decisive here. Other drivers include decisions by companies to allow Bitcoin as a means of payment. Tesla and PayPal recently played an important role in the recent price gains.
Conversely, the Bitcoin rate rushes south again and again when government restrictions are announced or introduced. This year, reports that China wanted to ban the extremely energy-intensive mining of Bitcoin had meanwhile plummeted the price to below $ 30,000.
Much more speculative
There is another fundamental difference: Despite the enormous increase in popularity and the recent strong price gains, the market for Bitcoin is still much smaller than that for gold, which is extremely manageable even when measured against the global equity market and even more so against the global bond market. That is certainly another reason for the extremely high price fluctuations.
The bottom line is that gold, despite its volatility, can be classified as a long-term store of value. Bitcoin is more of an object of speculation: Corresponding bets can bring in high price gains, but also significant losses. Finally, gold is also used in industry. Investors consider it to be a rather conservative investment. Bitcoin, on the other hand, is also very attractive to dubious or criminal market participants such as data hackers and blackmailers, the mafia or drug cartels due to its anonymity. That also does not necessarily speak in favor of using a reputable asset manager. Then I prefer the certainly more boring, but more solid gold.
About the author:
Thomas Buckard is co-founder of the MPF asset management company, which has existed since 2000. As a member of the board, he is responsible for customer acquisition and support. The passionate mountaineer previously worked in private banking at Deutsche Bank.