April 13th, 2020
The below references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.
Gold and precious metals for that matter, are often referred to as alternative investments. They are a way to hedge against economic downturn and inflation. many financial experts agree that gold should take up a small percent of your overall financial portfolio (from 5% to 10%). Over the last decade, a new type of gold, a digital gold has emerged-- Bitcoin. As an avid investor in both precious metals and cryptocurrencies, let's take an unbiased look at the strengths and weaknesses of both gold and bitcoin.
A quick background on Bitcoin; it's a digital currency that resides on a blockchain ledger which is attached to the owner's bitcoin wallet, which has a unique private and public key. The private key acts as a security measure for the owner to gain access and must not be shared. The private key is used for transactions to spend or give funds; while the public key is used to receive funds.
Bitcoin can be purchased from various platforms; Coinbase being the most popular. The user sends money in exchange for bitcoin. The bitcoin purchased can stay on the users/owners Coinbase account and after sent to his private wallet for extra security. Confused yet? Check here if you want the complete rundown.
You might be asking yourself: "Why would anyone want to go through the hassle of having to learn all that tech-savvy mumbo jumbo about cryptocurrency?"
The bitcoin wallet you create can be accessed through the private key and a 12 word "seed phrase". The creator of the wallet is given 12 random words from 2048 which when entered in the correct order allow access to your wallet. Don't worry, no one will guess your seed phrase as there are 2048^12 = 2^132 possible combinations. Read more about the see phrase here. Now that you are familiar with bitcoin lets get to comparing it to gold.
This was the main selling point for me in regards to bitcoin. I now have a 12-word seed phrase that can allow me to have access to my bitcoin. No matter where I am or what happens to me, once I have access to a computer or smartphone; a quick download of a bitcoin wallet and entering my 12-word seed phrase allows me to have instant access to my bitcoin.
As long as you do not share your seed phrase with anyone you have the ultimate trump card. A messy divorce, time spent in prison, bankruptcy, wanting to start a new life; bitcoin can be the game changer. It is much easier to remember your passphrase and know your bitcoin is safe, then having gold in a safety deposit box, or hidden at home. People may get access to your gold. For security, if you are educated enough on how to protect your keys, bitcoin is the winner.
How easily can you exchange your bitcoin or gold for cash? This is where it gets tricky. I have purchased computers from newegg.ca and traveled to Japan with Peach Airlines using bitcoin. I have even bought coffees with bitcoin in South Korea. However, there is no easy way to transfer bitcoin into cash when dealing with very large sums. You would have to place your bitcoin on an exchange like Coinbase, pay a service fee of several percent, and have the money deposited into your bank account, which you will have to pay taxes on.
Of course, you could use various bitcoin forum sites to find locals interested in buying bitcoin and make several private cash exchanges. However, the risk involved is exponential when compared to that of gold. While you cannot make online purchases with gold, there is no issue with converting large amounts of gold at fair prices at various gold exchanges, coin shops, and even banks if you do so choose. For fungibility, especially in large sums, I think gold is the winner.
Gold has been on a tear as of late, while bitcoin has slumped to as low as $3800 USD this year, from a high of just under $20,000 a few years ago. The volatility in bitcoin, and cryptocurrency in general, is on another level, when compared to gold. It is not uncommon to have price drops or increases of 10% a day with bitcoin. If you have high risk aversion go with gold. However, in terms of market trend, bitcoin is the better play in terms of profitability. Bitcoin has been the best investment in the last decade.
There are only 21,000,000 bitcoin. Each bitcoin can be broken down to a satoshi, which is 0.00000001 bitcoin to use as currency on the blockchain. It's truly some powerful, incredible technology that should not be overlooked regardless of your age or technical ability. It is crazy to acknowledge that SilverGoldPill, a website dedicated to precious metals would say this but, bitcoin is a better long-term play. Bitcoin, when secured properly, has no borders, completely decentralized from governments and banks, can't be ripped from your hands, has a finite amount, and is steadily gaining worldwide recognition. It truly is the gold of the future; a digital gold.
Remember having a diverse portfolio is always a better play. Invest in either commodities when price allows for potential gains. Depending on your investment needs and lifestyle, both gold and bitcoin can benefit you differently.
Note: If you do so choose to go down the rabbit hole of investing in cryptocurrencies, do not waste your time on what is often referred to as alt coins. At the time of this article, there are only two real players to watch in the crypto world. Ethereum and Bitcoin; each having their own use-cases.