The COVID-19 pandemic has affected the world in many ways. Many people are forced to stay at home, imposing self-quarantine and social distancing rules to contain the spread of the virus—but that’s only one of the effects of the virus.
The crushing effects of the pandemic on the economy
It’s no secret that the American economy is dealing with devastating repercussions from the spread of the virus. Industries are suffering heavily—entertainment, retail, travel, education, and hospitality, to name a few. Alongside the social distancing laws being implemented, what does an average American have to do to protect himself/herself financially?
As a result of the recent market crashes and downturn of the economy, some Americans are feeling insecure about the value of the U.S. dollar—searching for alternatives to preserve the value of their money.
A quick overview of preserving your wealth with gold and bitcoin
When it comes to the preservation of wealth, two assets often come to mind: gold and bitcoin.
Before we get to a comparison, let’s quickly go over what it means to preserve your wealth with these assets.
Precious metals are “precious” because they’re rare—there is a finite amount of gold in the world, and the more scarce it gets, the more valuable it becomes (according to the laws of supply and demand).
Gold has been valuable for thousands of years. Why? Mainly, it’s because not only do humans have an affinity for shiny things, but gold also has several industrial applications—electronics, aerospace equipment, dentistry, and jewelry, to name a few. However, the majority of the demand for gold comes from people who will use it for investment. With gold’s ability to maintain its value over thousands of years, it’s an ideal way for anyone to preserve their wealth—and although it’s not a surefire way for you to increase your wealth, it’s a great way to preserve it.
Just like gold, the majority of the demand for bitcoin also comes from investors. Throughout the years, that’s what bitcoin was mostly known for—speculative investment. However, with its evolution over the years, it has become more than that. There are now several real-use opportunities being provided by bitcoin, such as making borderless transactions, efficiently sending remittances, earning profits through e-commerce, and effective wealth preservation.
By converting their US dollars into bitcoin, Americans can protect their money from inflation.
Gold vs. Bitcoin
These two assets are very viable assets for wealth preservation—but which one is better? Let’s break it down.
A shield against inflation
Let’s start with one factor already mentioned—using these assets as a means of protecting your money from inflation. Many people fear that the value of their fiat currency will rapidly drop (it’s happened to many countries in the past, and with the effects of the current pandemic, it’s a very valid fear).
For the longest time, gold has been a popular means of hedging against inflation—which is why gold has often been referred to as a “safe-haven asset.” In the time of an economic crisis, people would often convert their money to gold in the hopes of preserving their wealth.
The same goes for bitcoin. Although the price volatility can turn people off at times, bitcoin has proven to be a viable means of wealth preservation.
When it comes to choosing between the two, it all boils down to preference. Let’s call it a tie for this round.
As I mentioned earlier (many times), gold has been able to retain its value for thousands of years. That literally means that people have had the time to trust gold—and rightfully so. Its value is definitely tried and tested.
Bitcoin, on the other hand, is still a relatively new kind of money. Its birth in 2009 only puts its age at a little over a decade. This means that trust is still developing, and it didn’t help that in its early years, it was mainly used for illegal transactions (thankfully, it’s different now, and it’s much safer). Although bitcoin adoption is slowly increasing, it’s still going to take a little more time for people to trust it fully.
This round goes to gold.
Getting in the industry
At the time of writing, the worth of a single ounce of gold is at a little under $1,700 ($1,696.10 to be exact). To start investing (or in this case, preserving your wealth) with ounces of gold, that’s the bare minimum you’ll need. There are probably bars and coins out there that contain less gold, but honestly, there’s only so much you can shrink a physical asset.
Now, this is where bitcoin shines. Although at the time of writing, the price of bitcoin is at $8,764.33, you can start with a couple of dollars as you don’t have to buy a whole bitcoin. A single bitcoin is divisible by 100 million units—turning it into the smallest possible division of a coin: Satoshi, or “sat.” Bitcoin and other cryptocurrencies have a much lower barrier of entry financially, logistically, and legally – earning them a win in this round.
When it comes to portability, I’m sure it’s clear who the winner here is. Since gold is a physical asset, it needs to be stored somewhere—whether it be a personal safe or with the company you bought it from. Even if you don’t hold the gold yourself, it doesn’t mean you can get access to it willy nilly—and even if you could, it wouldn’t mean that you’d be able to bring it around easily. Imagine lugging around several pounds of gold in your local grocery or airport without gathering attention or suspicion.
Bitcoin operates primarily on the internet—making it more portable and mobile. If you have a stable internet connection, you can access your bitcoin. Bitcoin also operates outside of standard financial systems (which provides a decentralized aspect to this “peer-to-peer cash system”), meaning you can send and receive bitcoin from anywhere in the world and at any time you please.
The clear winner here is bitcoin.
As mentioned earlier, gold is not only used as an investment tool, but it also has many industrial applications. In other words, there is a base level of functional demand that makes gold more valuable.
A lot of people think that bitcoin is just “internet money,” meaning that its primary function (aside from investment) is to purchase goods and services online. However, this is not the case anymore. Many citizens part of struggling economies are looking to cryptocurrencies like bitcoin as a means of financial inclusion. At times, bitcoin can be a way for people to participate in daily transactions. Traditional institutions like banks have minimum requirements (not all of which an average Joe can live up to)—why do you think there is still a big population of unbanked/underbanked people? Sometimes, traditional banks can disqualify people from financial inclusion for unfair reasons—making bitcoin the perfect alleyway for them.
If we were talking about this specific topic years ago, gold would be the clear winner. However, with bitcoin’s development as a currency and its ability to provide financial inclusion (as well as the real-use opportunities mentioned before), it’s a different story in today’s time. Let’s call this round a tie.
It all boils down to preference
The debate between gold and bitcoin is one that goes back and forth many times among financial experts. On one side, we have people arguing that cryptocurrencies aren’t “real currencies.” On the other side, we have crypto enthusiasts calling their opposition “gold bugs” who don’t have an open mind.
The point is that there honestly isn’t a clear winner between the two (even though bitcoin won more rounds in this comparison). In fact, they’re often interchangeable (especially now that a few peer-to-peer bitcoin marketplaces will even allow you to sell your gold for bitcoin).
They’re two different kinds of assets—with each having their own sets of pros and cons. Ultimately, it all depends on your preference: How high is your tolerance for risk? How much access do you need for your assets? How mobile do you need your wealth to be?
The choice is yours.
This article is written and sponsored by Paxful.