Since the rise of bitcoin over the past year, there has been a lot of discussion amongst the anti-government, pro-competing currencies crowd: is gold a better than investment than bitcoin or the other way around? This is an important question in a market where touching stocks can be disastrous and owning the United States dollar can be toxic.
Gold ended the year with a 28 percent decline, while bitcoin received a tremendous boost from just a few dollars to as high as $1,200. At the present time, gold has been making headway and is close to the $1,300 mark. The digital currency on the other hand relatively stabilized in January at around $800 but has since experienced flash crashes so far this month.
A lot of bitcoiners now scoff at the concept of owning precious metals. A significant number of goldbugs laugh at the idea of investing in something that you don’t necessarily physically hold in your hand and a unit that isn’t backed by anything.
Which crowd is correct? It’s hard to say at this point, but here are three benefits of owning gold rather than putting your money into the cryptocurrency market.
6,000 years vs. four years
For the past several years, investors on CNBC and the anti-gold crowd have consistently claimed that gold is in a bubble because it made consistent gains for 13 years. The usual response was: yes, well, gold has been in a bubble for 6,000 years.
Gold has been the tried, tested and true currency for 6,000 years and has spanned numerous civilizations. Those nations that maintained a gold standard flourished, while those that abandoned the yellow metal drowned in the pit of obscurity. Owning gold can never go wrong: bury a briefcase full of gold for 100 years and your investment will remain safe.
Bitcoin, meanwhile, is still a currency to experiment with. It has experienced immense volatility, the virtual currency has been complicit in a lot of global illicit transactions and there have been various reports of theft. Essentially, if you lose your bitcoins or they are stolen then they’re gone forever – though a bitcoin insurance establishment has been set up.
If you’re unsure about bitcoins and want something tangible then gold and silver are the metals to place your money as a hedge against inflation.
Physical vs. digital
Owning gold and silver bullion is a better decision than buying gold and silver certificates. Gold bars and coins can be secured safely in a safe at your residence or in a safe deposit box at your local financial institution. Either way, you own something you can touch with your hands.
With bitcoins and other digital currencies, such as litecoins, dogecoins and namecoins, users just look at numbers, cryptography and excessive speculation. One cannot touch bitcoins, peercoins and NoFiatCoins. Indeed, those who were early adopters of bitcoins made a lot of money, but nowadays it’s likely impossible to make an astronomical sum of cash.
In the end, physical gold is safer than trusting your bitcoins on a website that can be hacked at anytime.
Public vs. anonymous
Bitcoiners like to make the case that bitcoin is an anonymous tool and a perfect function to fight against the government, central bank and financial institutions. This is pure naivety because the National Security Agency, Internal Revenue Service and the Department of Homeland Security have infinite resources to track each individual’s online transactions.
Gold cannot be traced or hacked. One makes a purchase at a local bullion shop and it’s done. In fact, one could very well make the case that gold is the tool of anarchists because it is purely anonymous.
Indeed, gold confiscation is feasible since it has already happened in the United States during the presidency of Franklin D. Roosevelt, but precious metals can be hidden, while bitcoins can be tracked from coast to coast, sea to sea.
In conclusion, bitcoin is likely in a bubble and it will take years before the case is finished that gold is a superior investment to bitcoin. In the meantime, if you like, diversify: buy gold and bitcoins, buy silver and litecoins. Whatever you do, be safe, secure and careful.