Bitcoin: The Next Gold 2.0?
Investors are becoming more and more weary about the stock market. Despite company financials and unemployment, the stock market continues to reach record highs during the COVID-19 pandemic. Not long ago during more certain times, currencies used to be backed by Gold. Now, that isn’t the case. Instead, Gold is used as a hedge against inflation and excessive money printing to safeguard your money. Countries like Venezuela for example, are great examples of hyperinflation. They have to bring wheelbarrows of cash to markets just to buy a loaf of bread.
What’s The Difference Between Bitcoin and Gold
That brings us to this next point, what’s the difference between Gold and Bitcoin. Let’s start with the obvious ones. Gold is physical and tangible. It can be melted down into jewelry and other decorative items. We can see it and hold it in our hands. Bitcoin lacks the physical properties of Gold but people are buying into it for the same reasons. You see, there’s only a finite amount of Gold in the world and there’s only a finite amount of Bitcoin. Governments can’t make more Gold and Bitcoin Miners can’t make more Bitcoin due to a 21 million supply limit enforced in it’s code. This protects them both against inflation.
The advantage Bitcoin has over Gold is that it is accessible via technology. It’s not hard to whip out your smartphone and sign up for an exchange like Independent Reserve. From there these exchanges make it really easy to buy bitcoin just like you’re purchasing a stock.
Another advantage is that one day it has the potential to be used as currency, whereas Gold most likely won’t. Imagine going to the store and trying to cut your gold brick into pieces so you can buy a pack of gum. Yeah, not happening.
Bitcoin still has a ways to go before it becomes widely adopted as a currency. The problem with using Bitcoin as a form of currency lies in its stability. Right now in 2020, the price is much too volatile. It’s difficult to price goods and services in Bitcoin when the price fluctuates. Let’s say I want to buy that pack of gum using Bitcoin. Depending on the value of Bitcoin at that time, I may be able to buy 2 packs or I might only be able to buy half a pack with the same amount of bitcoin.
Another disadvantage of Bitcoin VS Gold is your Bitcoin is susceptible to getting swiped remotely. If people want to steal your Gold, I’d imagine they’d have to break into a vault. Hackers just need to hide behind a keyboard.
When you buy bitcoin from an exchange, it’s stored on the exchange. In order to keep it secure, you’ve got to move it off the exchange into an offline hardware wallet. Failure to do so let’s hackers take a crack at stealing your private keys. Picture your bitcoin sitting in a virtual vault. Private keys allow you to access your money. If a hacker discovers your private key, they can easily take your Bitcoin.
Perceived Value And Risk
Both Gold and Bitcoin are driven by perceived worth which makes them both risky investments. If at any point people sell all their stock in Gold or all their Bitcoin and there is no demand to purchase more, that’s where prices start to plummet. Despite these risks, investors are dumping loads of money into Bitcoin.
Entrepreneurs and investors such as the Winklevoss Twins are going all in and claim it’s “Gold 2.0”. The brothers bought 21 million dollars worth of Bitcoin back in 2013 when it was worth around $300. In 2020, the price has climbed to almost $20K USD making the twins Bitcoin billionaires. Take that Zuckerberg.
Tyler and Cameron Winklevoss are big believers and have not sold their positions. If anything, they’ve bought more and started an exchange to help support the cryptocurrency. According to Business Insider, as of November 2020, the twins believe the price will skyrocket above $500,000 USD.
This is not financial advice, but I wouldn’t go all in like the twins. A good rule of investing is only put in what you can afford to lose. Tyler and Cameron have a lot riding on this investment but they are what we call whales. You and I are fish or maybe even tadpoles in the grand scheme of things. And the crypto ocean isn’t like the stock market because it’s very unregulated. With that said, it’s hard to ignore Bitcoin especially when the returns have been incredible up to this point. As more and more tech companies such as paypal and square adopt it, it makes you think that there has to be some merit there. It could very well be a more accessible version of Gold. One thing for sure, no one knows what the future holds and only time will tell.
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