Bitcoin vs. Gold



Vladimir Finom



Last week, the World Gold Council published a statement declaring that neither bitcoin nor any other cryptocurrency should be compared to that most important of precious metals.

"Cryptocurrencies may become an established part of the financial system. But, in our view, gold is very different from cryptocurrencies," the WGC said in its statement to investors.

Among the advantages of gold given by the Council are its low volatility, market liquidity and its well-established regulatory framework.

"These characteristics underpin gold's role as a mainstream financial asset that will likely continue to resonate in today's digital world," the Council added. The WGC stresses gold's historical importance, stating that gold has been a source of income in constant competition with the stock market and has performed well during periods of inflation.

The WGC notes that while cryptocurrency's rise in value has been remarkable, its purpose as an investment is cardinally different from that of gold.

Over the last four decades, gold has demonstrated a rather tame volatility. Bitcoin, on the other hand, has shown a sudden surge in price over the last few years, rising over fifteen times its previous value just in the past year.

Unfortunately, bitcoin was forced to pay for its high volatility in the form of a significant price correction, losing 40% of its value in a single month.

Moreover, the WGC clarified that it's not worth comparing bitcoin to gold if only because of their different sources of demand. Gold is owned by central banks and institutional investors, but consumers also own gold in the form of jewellery, representing 50-60% of annual demand. Bitcoin, on the other hand, is intended for use in electronic payment systems.

Due to these and other differences, it's useless to compare bitcoin to gold. Each asset has its own advantages and can be used in different situations.

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