In this article, we will go through a fair comparison between Bitcoin vs. Gold vs. Stocks. This comparison is necessary to understand why Bitcoin is often seen as a better investment than gold or stocks.
In brief –
Bitcoin is a digital asset and a payment system invented by Satoshi Nakamoto. It is unique in that there are a finite number of them: 21 million.
Gold is a physical asset that has been used for money and jewelry for thousands of years.
Stocks are shares of ownership in a company. When you buy stocks, you become a part owner of that company.
What is the purpose of ‘Money’?
A system of bartering was used by humans prior to the invention of money. Essentially, you’re exchanging what you already own in order to get something you want.
However, when you just had horses and you needed bananas, this became difficult. A farmer reportedly asked, “How many bananas is a horse worth?” as he was bartering with other farmers for food.
People naturally started to use ‘money’ to trade with each other, utilizing the currency to value their possessions and as a means of exchange for their commodities. It wasn’t long before gold was found that a variety of commodities were used as currency.
Because shells were scarce on the mainland, beautiful to look at, and labor-intensive to carry, many people saw value in them. Because of the abundance of shells in the area, fishermen and coastal residents did not place the same value on them. It is because of this reason that fur was a more valuable currency since it needed more effort to trap and skin an animal.
Currency refers to the units of exchange that are used to purchase goods and services. Money, on the other hand, is a broader term that refers to anything that can be used as a means of exchange, including currency, check, or credit.
In the beginning, gold was the only currency that had a finite quantity. As a result of its rarity and distinctive chemical composition, gold came to be considered valuable and was used as a money over the world for a long period of time.
Gold
Once upon a time, gold was money in and of itself; receipts, credits, IOUs, etc. were all generated from it.
In the late 17th century, traveling merchants who brought their gold to England were offered the option of storing it for a charge in a safe place. A receipt (banknote) in the merchant’s name would be issued by the Goldsmiths of London, who would then store the gold and allow only the trader to redeem the receipt for gold.
It is possible for foreign traders to pass up the ownership of their gold to the Goldsmiths if they remain in England for a lengthy period of time A mechanism known as “fractional reserve banking” would reward the traders by giving them a tiny interest rate in exchange for lending out the money they had amassed. Individuals quickly saw the potential to profit from the safekeeping of their gold in these central vaults.
We started to witness the beginnings of banks, which were regulated commercial activities that could retain deposits, lend money, and pay interest.
Story of US Dollar
Originally, the US Dollar was a claim-cheque for gold, which meant that people may swap their currency for gold at any moment. When the First World War broke out in August of that year, everything changed.
During the “gold standard” period, when the value of banknotes was tied to gold, taxpayers were expected to foot the bill for wars via taxes and government-issued war bonds.
A devaluation of the US dollar would occur if there was no popular desire for war and the government issued more banknotes than the gold worth they were meant to represent. Many people think the war would not have continued if it had been financed under a gold-backed system.
The government needed more real money to back up the additional paper dollars they had issued. Although gold cannot be printed, governments and central banks may take it. Gold bullion and coins were outlawed by Franklin D. Roosevelt in 1934, and Americans were ordered to hand up their gold for $20 per ounce or face a $10,000 fine or ten years in jail.
The Fiat Money
The United States of America possessed two-thirds of the world’s gold supply at the end of the Second World War. The Bretton Woods Conference brought together the leaders of the world’s greatest economies. According to their plan, a new monetary system would tie all worldwide currencies to the US dollar, with the US dollar tethered to gold at $35/ounce ($15 more than it had been confiscated for 10 years previously).
Over the next several decades, the value of the dollar will continue to deflate as a result of ‘quantitative easing’ or’money printer goes brrr’. Many nations demanded their gold back after learning what was going on, placing pressure on the Federal Reserve’s decreasing holdings.
US dollars were no longer readily convertible to a set quantity of gold in 1971, when President Nixon ‘temporarily’ loosened the dollar’s ties to the precious metal. Because to Nixon’s actions, the Federal Reserve now has the authority to produce unlimited amounts of US currency.
In the absence of a restriction on how many dollars might be manufactured, supply continued to rise. In spite of Nixon’s assertion that it would only be for a short time, we have never gone back.
Creation of Bitcoin
As a decentralized currency that cannot be banned or deflated by any government or governing body, Bitcoin was founded in the wake of the 2008 financial meltdown.
Bitcoin is a digital asset and a payment system invented by Satoshi Nakamoto. Transactions are verified by network nodes through cryptography and recorded in a public dispersed ledger called a blockchain. Bitcoin is unique in that there are a finite number of them: 21 million. Bitcoins are created as a reward for a process known as mining. They can be exchanged for other currencies, products, and services. As of February 2015, over 100,000 merchants and vendors accepted bitcoin as payment.
Developed in the wake of the financial crisis of 2008, bitcoin serves as a decentralized medium of exchange that is impervious to government intervention or third-party manipulation.
How does Bitcoin stack up against other forms of capital?
Gold: Price movement
The beginning of the chart shows that in February 1915, the price of gold was $496.27 per ounce. In January 1980, the price of gold peaked at $2246.79 per ounce and proceeded to decline for the next two decades steadily.
In January 2022, the value of gold was $1828.57 per ounce and has since continued to rise in price.
Stocks : Price movement
The S&P 500 stood at 261.63 points in January 1928. From 1929 to 1932, the S&P 500 gradually grew to 449.44 points before plummeting nearly 86% in three years during the Great Depression. A rebound to its prior high in S&P was not achieved until 1954.
Since then, stock prices have continued to rise steadily until the early 1970s and early 1980s, when the index was at 283.15 points. A decade of internet-fueled wealth creation followed, with the S&P Index rising to a high of 2264.38 points before tumbling to an all-time low of 893.13 points during the Great Recession of 2008.
As a result, world leaders and central banks are now working together to avert another such financial calamity. Governments have been pouring money into the system nonstop in an effort to maintain the global economy.
In December of this year, the S&P 500 reached its all-time high point of 3240.47 points. The following year, the world economy was placed on hold for six months as a consequence of the Covid-19 epidemic, which caused the index to plummet to 2582.01 points in March 2020.
Despite the worldwide shutdown, the American stock market index has risen to 3239.41 points in July 2020 thanks to a joint effort by the government and the financial sector.
Investing in the stock market is no longer a viable option for respectable and successful investors, as you now know. More than 50 million Americans are out of work, and millions of firms have shut down because of the recession. It’s difficult for people to comprehend why the stock market has performed so well at such a dismal and unpredictable period of time.
Bitcoin
1 BTC was worth around $0.0008 in 2009. Since then, Bitcoin’s value has fluctuated greatly. About every four years, a process called “the halving” reduces the number of Bitcoins granted to miners for the validity of blocks. Historically, this has been a sign of a Bitcoin bull run, in which the value of the currency has soared.
With a rise from $0.0008 to $0.008, or a 100-fold gain, the first Bitcoin bull run began in July of 2010. In 2013, Bitcoin’s next bull run, its price rose to little over $1200.
Bitcoin’s all-time high was around $67000 on Nov 8th, 2021.
Many technical experts and crypto traders, on the other hand, believe that Bitcoin will hit $100,000 in the next bull market, and some even predict that it will reach $200,000-$300,000.
Volatility Comparison
Volatility is a measure of how much the price of an asset changes over time. The higher the volatility, the more the price can change in a given period of time. Gold is less volatile than bitcoin. The price of gold has historically been more stable than the price of bitcoin.
Gold Volatility
When looking at the price history over a period of 100 years, it’s easy to see how gold’s price fluctuates, which has historically coincided with periods of hyperinflation and massive national debt.
Gold was worth $496.72 per ounce in April 1915. During the Great Depression, the price dropped to $254.27 per ounce, before rising to $683.95 per ounce in January 1934.
The lowest gold price ever recorded was $236.80 an ounce in November 1970. The price of gold shot up for a decade after the news that the US dollar would no longer be pegged to the precious metal, reaching an all-time high of $2246.79 in 1980.
Charts illustrate that gold hit a low in April 2001 of $375.92 before rising over the following two decades to a level that may soon surpass its previous record high.
Stocks Volatility
Growth in the S&P 500 and other significant indexes (Dow Jones, NASDAQ) has been consistent throughout time. Although there have been a few severe dips, in general the value has been rising over the long run.
Even with record unemployment and poor productivity, some individuals now believe that the US economy is in a “bubble” because of the current pandemic and its influence on the global economy.
Bitcoin Volatility
Bitcoin is notoriously volatile, losing up to 50% of its value in a single day.
When it comes to price volatility, Bitcoin has historically been considered one of the riskiest assets, although it has outperformed gold and the stock market. It is currently considered one of the least volatile cryptocurrencies on the market, after months of sideways price movement for the Bitcoin currency.
There are still millions of Bitcoins to be mined, and the currency is still in its infancy. Eventually, Bitcoin may serve as a stablecoin. The price of Bitcoin will likely settle after the maximum amount has been mined if it becomes a worldwide reserve currency.
Bitcoin’s value rises and falls on a regular basis. Bitcoin’s price volatility is of little concern to long-term hodlers who understand the foundations and value proposition of the digital currency. Many traders find Bitcoin’s high degree of volatility to be enticing.
Purchasing power
Purchasing Power of Gold
This precious metal has been a store of value and wealth for thousands of years, and it is likely to continue to do so for many more. As precious as gold is, it is difficult to acquire and store in significant amounts.
The majority of individuals do not feel comfortable enough to retain big quantities of gold in their own homes, so they choose to put it in a safe deposit box. A certificate of authenticity and a claim-cheque would be issued to certain persons who possess gold, but they have never actually seen or handled it. It may sound similar to anybody else.
People don’t go to the grocery store with gold coins jangling about in their pockets because it’s not practical.
Gold’s buying value has remained constant throughout time, but its usefulness in daily transactions has decreased nearly completely.
Purchasing Power of US Dollar
USD’s purchasing power may change depending on a variety of factors, including inflation rates, economic conditions, and trade policies.
It has been 97 percent lower in buying power since 1914 owing to currency debasement.
That’s why $100 in 1914 would be worth $3.70 in today’s dollars. As recently as a few years ago, $20 could buy you a month’s worth of groceries, but today it barely covers your lunch.
Purchasing Power of Bitcoin
A Bitcoin was worth less than 1/100th of a cent during the first several years of its existence. In 2010, Laszlo Hanyecz bought two Papa John’s pizzas for 10,000 BTC, which at the time was worth $30.
Assets in the deflationary category retain their buying power even as their market value rises.
Bitcoin vs Gold vs Stocks: Conclusion
Gold
After Nixon withdrew the gold peg from the US dollar in 1971, all major national currencies were pegged to the dollar, and gold was no longer the world’s reserve currency.
Even though gold has a long history of being valuable, the precious metal is difficult to store securely and cannot be readily divided.
BTC
Bitcoin is the rescuer of a financial system that is corrupt, fraudulent, and on the verge of collapse, providing a worldwide currency that is impervious to censorship and allows for borderless payments and transactions.
Since its inception in 2009, the BTC cryptocurrency’s value has steadily risen, making it an increasingly attractive investment and trading choice.
Digitally scarce and transparent, Bitcoin is a deflationary asset. There are only a limited number of Bitcoins in existence and they cannot be tampered with.
Immediately after the collapse of the economy, the value of the S&P 500 has surged. With millions of people out of work and productivity at a historic low, many people are suspicious of the stock market’s performance.
The United States Dollar Most people are unaware that the US dollar’s value is steadily declining as the Federal Reserve continues to create billions of dollars. All of the money the US government spends this year will be repaid to US taxpayers next year through higher taxes and inflation, as is the situation in many other nations.
