The public narrative has seen a rapid change over the past year. From media channels celebrating Bitcoin’s death during March of 2020 to the utter disbelief of the same when it broke its all-time high, many are now looking at Bitcoin more seriously.
In the last few months, we saw institutions taking the lead, by converting part of their cash reserves into Bitcoin as a result of the economic instability and large upcoming inflation rates.
These large market players did not choose gold, claiming that Bitcoin has many benefits, making it superior to the precious metal.
But what exactly are those benefits? And does Bitcoin really act as digital gold? Many believe so. Financial analysts are now predicting that the popular cryptocurrency will eventually surpass gold’s market cap, and the event may happen faster than some think.
In this article, we will discuss why institutions and hedge funds are rushing to buy Bitcoin and why it has the potential to replace gold as the best store of value.
Why Bitcoin is a better alternative to gold?
While gold has been the most popular store of value throughout millennia, Bitcoin was built to improve upon its weak points. In short here is why Bitcoin is a better alternative to gold:
- It can act as a currency – Apart from acting as a store of value, Bitcoin also acts as an
alternative currency. It can be sent directly from wallet to wallet, with minimum fees, at
any time of the day. This means that you can take it overseas, send it to anyone you
like, and not involve any third parties who will likely try to take a commission.
- Storage is free – Bitcoin storage is free and does not require monthly or annual payments. Gold on the other hand, due to its bulkiness and size, is often stored in the bank or other types of financial institutions, which can often take a bite from your profits.
- It cannot be confiscated – No one can take control of your Bitcoin by closing your account, stealing your coins, or controlling your transactions. This issue is often seen when passing through customs, as gold owners are required to pay large amounts of tax to bring gold into a country. On the contrary, Bitcoin is stored in a USB-like device (hardware wallet) or a mobile phone, which makes it impossible to track and confiscate by third parties.
- It is not manipulated – Gold’s value has remained stagnant for years, as large hedge funds are going short on its ETF in the stock market. At this moment, Bitcoin only has a very small amount owned by corporations that can issue ETFs. Due to that, when buying Bitcoin from an exchange, you get full control and ownership instead of mere exposure to the asset.
- It has a limited supply – No one really knows how much gold is circulating the market. On the contrary, everyone knows that there is a total of 21 million Bitcoin and there can never be more. This element adds to the scarcity of the coin, which in turn increases its demand. Adding to that, Bitcoin’s mining element goes through a halving of rewards every four years, decreasing the newly minted coins in half. This projected increase of scarcity cannot be found in gold.
Why many are still in disbelief?
Even though there are many signs that Bitcoin is here to stay and dominate the investment markets, the common sentiment is still one of fear and lack of understanding. Asset managers like Peter Schiff, who is a well-known gold bug, continuously bashes Bitcoin on the argument that it has no real-world value. Gold, he claims, can be used to create jewelry and other products.
This belief is shared by many. And the fundamental root of the problem lies in the lack of education. Since most people are not incentivized to care, there is nothing to pursue them to understand what Bitcoin is and how it works, even if that means just reading a 9-page whitepaper.
The same people will turn to Bitcoin when its price has reached 6-figures and inflation rates will have eaten up most of their saving’s value.
What we can expect in the next 5 years
Gold’s current market cap is estimated to be around $10 Trillion. Many financial analysts project that this number will further increase within 2021, as more people turn to safe-haven assets in order to protect their wealth from inflation.
Assuming the market cap of gold goes to $15 Trillion within the next couple of years, Bitcoin would still have a long way to go in order to “flip” it successfully. At current estimates, if it were to reach this market cap, the price of Bitcoin would be around $700.000 per coin.