The biggest bull case for Bitcoin (BTC 0.12%) right now centers on it becoming a digital version of gold. While cryptocurrency enthusiasts envision a world where digital assets have real utility in our daily lives, as things stand today, the most valuable cryptocurrency is just starting to scratch the surface as a legitimate store of value.
Institutions are beginning to allocate portions of their portfolios to Bitcoin, and corporations like Block and Tesla are even buying Bitcoin for their balance sheets. I expect many organizations will follow these trailblazers, creating a path to cement Bitcoin as a true "digital gold."
I think the top cryptocurrency has some major advantages compared to the expensive precious metal. Continue reading to find out why Bitcoin may be a better investment than gold.
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How Bitcoin and gold are similar
First, it's worthwhile to understand the similarities between Bitcoin and gold. As you may already know, both possess scarcity. There will only ever be 21 million bitcoins mined, and there is only a finite amount of gold in the Earth's crust. Basic economic principles tell us that if supply is fixed and demand rises, prices should go up. This situation supports price appreciation, so it's no wonder that gold is seen as a safe asset to hold because it's expected to maintain its value over time.
Besides being used in jewelry because of its luster and rarity, gold has some utility, mainly in the components of electronics. Bitcoin, on the other hand, is slowly beginning to gain momentum when it comes to real-world use cases. Late last year, El Salvador made Bitcoin legal tender. Thanks to its speed and low costs, the crypto can be used for remittances -- financial transactions that usually incur high fees.
How Bitcoin is better than gold
If we dig a bit deeper, though, we'll see that Bitcoin has a serious edge over gold.
Let's revisit the topic of scarcity. What you initially assume about gold's supply is possibly flawed. According to the U.S. Geological Survey, roughly three-fourths of gold in the Earth's crust has already been mined. There are still more than 50,000 metric tons underground. If the price of gold skyrockets for some reason, mining companies might find it worthwhile to extract deposits that are currently not economically worthwhile to access.
This simply means that the supply of gold can go up if market conditions allow for it. Bitcoin's supply is absolutely finite, as it's based on computer code that can't be tampered with. That's why it's such a volatile asset. Supply can't be adjusted to meet changing demand to smooth out any imbalance. Raising the lifetime limit of 21 million Bitcoins requires a so-called hard fork, which leaves Bitcoin as we know it unchanged and creates a new cryptocurrency with tweaked code and characteristics.
Additionally, contrary to gold's properties, Bitcoin is easy to store and move around. It's also divisible up to eight decimal places, and it can be used in transactions. Try taking a gold bar out to a restaurant and slicing off a small chunk to pay for the tab. This just isn't practical.
If the qualitative characteristics aren't enough to convince you of Bitcoin's advantages, then let's look at the cold, hard numbers. Since May 2013 (the earliest data provided by Coin Market Cap), Bitcoin's value has surged more than 24,400%. During the same time, the price of an ounce of gold has increased by just 25%.
To be fair, Bitcoin is extremely volatile and is a much more difficult asset to own for your peace of mind. To illustrate, someone who puts their entire net worth in physical gold would probably be able to sleep better at night than someone who went all-in on Bitcoin. But over an extended period, Bitcoin's return speaks for itself.
Bitcoin and gold are always drawing comparisons in the investment world. However, it should now be strikingly clear that the cryptocurrency is becoming a much better place to park your money.
