Just a few years ago, there was no question about whether to buy Bitcoin or gold as an off-the-books investment. That isn’t the case anymore.
There have always been people who don’t trust banks, who don’t trust companies, and who don’t trust governments with their money. The traditional term for such people was “gold bug,” because their favorite “investment” was gold. Gold is easy to move around, in small quantities. You can trade it anywhere. You can hide it.
In 2018, however, many gold bugs have switched to Bitcoin. Bitcoin is even easier to move around, because it only exists digitally. You can turn it into other currencies from anywhere. If I were an international drug dealer, I’d find it much more useful than paper money, if I could get enough of it.
Among those who distrust banks, companies and governments, the merits of Bitcoin or gold has become a hot topic.
Bitcoin or Gold? Look at the Charts
On July 20 it takes about 6 ounces of gold to buy a Bitcoin. The same ratio held last November. Since then Bitcoin has gone as high as 15 ounces of gold, at its December peak, and as low as 5, a level it held as recently as last month.
Looking at each asset’s price in isolation, over the last year, Bitcoin and gold have described similar patterns, only with a lag.
Gold made a run higher after Bitcoin began falling in January. It held its peak through April at $1,350 per ounce. Gold is now back to the levels of early 2017, trading at $1,224, while Bitcoin recently bounced back, trading July 20 at $7,475.
The problem with analyzing this is that few people are objective. This piece is by someone selling gold. This one is by someone selling Bitcoin.
Speculation vs. Millenia
Most arguments come down to a question of short-term vs. long-term.
Bitcoin is more volatile, with more fans who think it’s going to the Moon than gold. They might find more gold, but once we mine 21 million Bitcoin that’s all there will ever be.
Gold, however, has an argument in its favor Bitcoin can’t make, which is time.
Gold can’t make the “going to the Moon” argument today because it has disappointed people profoundly during this decade. The price of gold today is the same as it was in July 2010. But gold has had its runs.
Gold rose spectacularly in the 1970s, when inflation was high. It did equally well in the 2000s, when economic uncertainty was high, but Bitcoin hadn’t been invented. Bitcoin, it seems, has taken the speculators away from gold.
There Is No Single Answer
The arguments for Bitcoin or gold come down to one word: Protection.
Stock prices are high, but we all know they fluctuate. Currencies also fluctuate in value. Bad governments can destroy savings by simply printing money. Investors with money want one answer that solves the problem of money. Either Bitcoin or gold could provide the protection you want based upon your needs and beliefs.
There is no one answer. If someone comes upon your grave 5,000 years from now to find some gold bars and your Bitcoin wallet, they’ll probably take the gold. But you won’t notice. On the other hand, if the stock market or the dollar or both crash this fall, a lot of money is going to move into Bitcoin, and you can then turn it into whatever currency you want.
We’re left with the ultimate, boring answer. Diversification. If you want to protect your money from a downturn, keep it in many different places. Be defensive with Bitcoin or gold if you want, but spread the wealth among asset classes, with some in a variety of stocks, some in bonds, some overseas and some in real estate.
If you have bets across the board some are bound to win.
Dana Blankenhorn is a financial and technology journalist. He is the author of a mystery novella involving Bitcoin, The Reluctant Detective Saves the World, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story, and no cryptocurrency. To follow the value of cryptocurrencies bookmark https://coinmarketcap.com/
