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15 years have passed since then Bitcoin (BTC 2.59%) First released. Since then, it has continued its historic journey to become the most productive asset of the 21st century.
Over the course of this journey, investors have struggled to sort out what Bitcoin is and why it has merit as an investment. Perhaps the most well-understood and effective narrative that sticks is that Bitcoin is similar to digital gold.
Comparisons to gold help categorize Bitcoin’s multifaceted use cases, but is Bitcoin actually a better asset than the ancient precious metal? It is clear that one asset is better than the other.
Image source: Getty Images.
Tracing the roots of gold
Over the centuries, the usefulness of gold has changed significantly. Primarily used as currency for thousands of years, it eventually took on a role as a safe-haven asset during the economic turmoil of the 1970s. Amid double-digit inflation rates, gold emerged as the most viable means for individuals to preserve their wealth and counter the erosion of the dollar.
To Gold’s credit, it did a very good job. In the 1970s, gold rose from just under $300 an ounce to nearly $2,600 an ounce. This was a staggering 700% increase, more than the rampant inflation.
It is in this decade’s performance that the story of gold as a store of value may have its roots. However, it is still not clear why this story persists.
Considering the decades of inflation since the 1970s, gold’s performance has been relatively lackluster. Gold’s inflation-adjusted total return from 1980 to the end of 2023 is an impressive -4%. It is sufficient as an inflation hedge.
Compare Bitcoin
Gold’s demise could be attributed to several factors, including a generally stronger dollar than in the 1970s and moderate interest rates that encouraged investors to hold dividend-producing assets. . While identifying the exact culprit remains difficult and a task better suited to macroeconomic experts, what is clear is that the dominant narrative of gold as a store of value is disappearing. is.
Admittedly, we don’t have decades worth of data on Bitcoin, so measuring gold’s performance over 50 years may be a bit unfair. So let’s take a look at the latest ones.
Over the past 10 years, gold has returned 30%, adjusted for inflation. On an annual basis, that percentage is only 2%. Next is Bitcoin. When accounting for inflation, the world’s first cryptocurrency has appreciated more than 3,700%, giving an annual return of 44%.
In this regard, gold advocates and crypto commentators typically point out that there has been significant volatility over the course of Bitcoin’s historic price rise. Tuche. Yes, Bitcoin’s volatility is definitely worth noting.
However, volatility is a double-edged sword. The volatility that causes Bitcoin to lose three-quarters of its value every few years is the same volatility that propelled Bitcoin into the best-performing asset of this century. Needless to say, there is clear data to prove that Bitcoin’s volatility decreases as the asset class matures.
If we zoom out, it actually features Bitcoin’s volatility. For investors looking to invest for years or decades rather than months, there are few options with a better track record and long-term potential than Bitcoin.
The real reason Bitcoin is better than gold
While it is clear that Bitcoin is outperforming gold on a price basis, there are several other characteristics that make Bitcoin a great store of value built for the future.
The most obvious one is that the supply is finite. Although gold is thought to be finite, the reality is that its supply can be affected by mining activity and new discoveries. Conversely, Bitcoin has a limit of 21 million coins, which cannot be changed by any individual, entity, or group.
This brings us to what may be Bitcoin’s most attractive features and why it is considered a superior form of gold: decentralization and security.
Because Bitcoin runs on a blockchain maintained by computers around the world, investors can rest assured that their hard-earned funds can never be devalued or confiscated by any government. You can have peace of mind knowing that you are securely protected behind a compromised network. This is something that money cannot claim. If you don’t know what I’m talking about, look up Executive Order 6102.
In an increasingly digital world where the value of fiat currencies is consistently declining, Bitcoin’s investment proposition becomes clearer. Providing its holders with true financial sovereignty free of currency manipulation, Bitcoin has not only proven capable of displacing gold as a superior store of value, but is also the ultimate choice for securing and building wealth in today’s world. has become an asset.
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