Is Bitcoin Poised to Compete with Gold as a Reliable Store of Value?

Since reaching its peak at $64,000 in November 2021, Bitcoin has undergone a significant downturn, seeing a decrease of more than 30% in value. As of December 2023, its current price hovers around $42,000 (£33,400), reflecting an improvement from the lows of approximately $16,000 (£12,800) back in 2022.

The upward trajectory of Bitcoin’s price in Q4 of 2023 has propelled the leading cryptocurrency and driven gains across the digital assets market, reaching trillion-dollar levels.

Amid these market dynamics, the UK is grappling with stubborn inflation levels, prompting speculation among analysts about the possibility of the Bank of England resorting to additional money printing. Seemingly, such a move could aid in restoring Bitcoin’s price to its previous heights.

Could we witness a future where Bitcoin surpasses gold as a store of value?

Key Takeaways

  • Bitcoin has experienced a notable decline of over 30% from its peak in November 2021, dropping from $64,000 (£52,300) to approximately $42,000 (£33,400) in December 2023, obviously, with a subsequent 27% rise in 2023.
  • Analysts are considering the possibility that the Bank of England and Federal Reserve might print more money to combat inflation, which could contribute to a resurgence in BTC’s price.
  • Ongoing discussions comparing bitcoin and gold as stores of value highlight its perceived strengths, such as technological advantages and borderless nature.
  • The performance of Bitcoin in comparison to gold is contingent on various factors, including the prevalence of digital transactions and geopolitical contexts. Some view Bitcoin as a hedge against capital controls and censorship.

The Bitcoin Evolution

Bitcoin’s history underscores its unique design, featuring a fixed maximum supply of 21 million coins—a distinctive characteristic distinguishing it from other cryptocurrencies lacking such capped limits. This design choice safeguards against inflationary pressures stemming from excessive mining, similar to the printing of fiat currency.

It is worth noting BlackRock CEO Larry Fink recently likened cryptocurrencies to ‘digitalized gold.‘ In a July 2023 interview with Fox Business, Fink highlighted Bitcoin as an “international asset,” suggesting individuals could invest in BTC as they would in gold, providing a hedge against challenges faced by any country. 

The crypto community took note of Fink’s statement, emphasizing Bitcoin’s potential to evolve into a global digital store of value, particularly in countries beyond major currencies. Despite its annual volatility, still three times that of gold, Mike McGlone, Senior Commodity Strategist at Bloomberg Intelligence, remarked on Bitcoin’s trajectory, indicating it has a considerable journey ahead.

David Waugh, lead analyst at Coinbits, echoed this sentiment, portraying Bitcoin, like gold, as a robust store of value with added technological advancements suited to the ever-changing digital landscape. 

Despite price fluctuations, Bitcoin’s credibility remains unscathed, boasting the best performance over the past decade with a 4-year compound annual growth rate of 33%, a feat beyond gold’s reach. Waugh emphasized Bitcoin’s scarcity and censorship resistance, positioning it as a promising long-term store of value.

Gold as a Store of Value

Gold has traditionally held its status as a premier store of value, deriving strength from its scarcity and finite supply, a quality it shares with BTC.

Unlike fiat currencies, vulnerable to devaluation through excessive printing, gold is a reliable hedge against inflation and economic uncertainty. Investors often gravitate towards gold during financial instability, solidifying its role as a sanctuary asset.

Bloomberg Intelligence’s McGlone highlights the enduring strength of gold’s store of value, underscored by central banks consistently acquiring the precious metal at historic highs. However, he notes challenges such as rising interest rates, led by the US, high real yields, and the resilient stock market, posing as competition for gold.

Coinbit’s Waugh recognizes gold’s historical significance as a haven and currency throughout civilizations. He attributes its enduring popularity to durability, scarcity, and divisibility. However, in the contemporary digital landscape, where the ability to transfer value over the internet is paramount, Waugh contends that Bitcoin takes the lead.

So, could Bitcoin ever rival gold?

Could Bitcoin Rival Gold?

Waugh believes Bitcoin’s technological advancements give it a leg over gold, boasting enhanced features like improved divisibility, portability, durability, verifiability, and scarcity. These qualities position Bitcoin as a more efficient and effective store of value.

“Bitcoin, with its technological advancements such as improved divisibility, portability, durability, verifiability, and scarcity, is set to outshine gold as the preferred store of value, marching towards becoming the world’s global reserve asset,” he added.

While it might be premature to predict whether Bitcoin could surpass gold in hedging against inflation, McGlone from Bloomberg Intelligence highlights instances where Bitcoin, like gold, has already proven effective in mitigating debasing tendencies, especially for currencies undergoing depreciation.

McGlone further elaborates, noting that Bitcoin emerged during historic zero interest rates and initially outperformed gold as it gained mainstream acceptance. However, he acknowledges Bitcoin’s underperformance relative to gold since the Federal Reserve started raising interest rates. McGlone anticipates potential price declines for Bitcoin amid a recessionary environment, driven by a historic pump in liquidity, despite Bitcoin’s traditionally higher volatility compared to the S&P 500 and gold.

Waugh adds that Bitcoin tends to outperform gold in contexts dominated by digital transactions and where resistance to censorship becomes crucial.

The Takeaway

While optimism persists among analysts looking at Bitcoin as a potential rival to gold, the uncertainty within crypto markets continues to leave room for speculation. McGlone emphasizes Bitcoin’s unique position as one of the most dynamic 24/7 traded global assets in history, functioning as a crucial indicator for risk-on/off-liquidity. He also suggests a future scenario where central banks, highlighted in Saifedean Ammous’s “Bitcoin Standard,” could include Bitcoin in their holdings.Disclaimer:This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.