Bitcoin or Gold?

With the dramatic rise in the price of bitcoin, investors and major news outlets are again taking notice of the digital asset that has struggled to find a mainstream niche. A niche bitcoin has managed to fill is the counter-culture digital libertarian desire for autonomy in all facets of existence, including the monopoly enjoyed by governments in printing money. Referencing many political writings, bitcoin believers have long held bitcoin as the promised answer to government overreach, with some going so far as saying bitcoin can end all wars. Though backed by a younger crowd, bitcoin has stepped into familiar territory as that of an older investment oft-cited by counter-culture wonks and theorists: Gold!

Investors who cite gold, physical in your hands (or buried in your survival bunker) metallic gold, are referred to as gold bugs, and stereotypically possess certain characteristics: mistrust of the government, belief in certain conspiracies to undermine the economic system, disdain for many mainstream economic theories, and hostility toward anyone critical of their beliefs. Sound familiar? Bitcoin believers have tapped into this generation’s same skepticism toward governments of all types, the economic system, and the authenticity of leaders who seem to be in the pockets of rich financiers and business leaders. So what does this mean for bitcoin and its cousin, gold? Competition for best anti-government safe haven asset may be on the rise.

In the bitcoin corner, the embrace of technology to find a solution to perceived government overreach is a natural conduit for younger generations raised on technology and the belief that technology will solve tomorrow’s problems. Credit cards and bank accounts are already digitized, with most transactions occurring without the use of physical cash. Why not, it would seem, go completely digital with a cryptocurrency like bitcoin? The generation of bitcoin is also thought of as more egalitarian, offering anyone the ability to earn money through contributing their computing resources. You can’t say that about dollar, as the government is the only authorized printer. Lastly, bitcoin runs over the internet, free from many of the regulatory and bureaucratic hurdles of government and big business. The internet has long been a breeding ground and safe space for fringe political movements and anti-government types who long for increased personal freedom. Bitcoin is still the ‘new’ thing, and cautious adoption has followed due in part to lack of history and credibility.

Four nines fine standard 400 oz gold bars.

A metal that surely has no issue with history or credibility is gold. Traded by humanity for thousands of years, possessing an intrinsic value tied to its exchange utility and legacy, gold is here to stay as a valuable commodity. What gold possesses that bitcoin does not, is mainstream acceptance and utilization. The simplicity of acquiring and possessing gold coupled with the universal understanding of its value makes gold a strong choice for investors who want an alternative that has stood the test of time. Though the returns on straight gold investment have lagged behind in recent years, supporters of gold cite the resilience and history of gold as the best indicators of future utility. Unlike bitcoin, which could simply be deleted, gold can’t be made to disappear. And if the power goes out, gold doesn’t need the internet to maintain its value.

Problems exist with both bitcoin and gold. Bitcoin is controlled by an unclear group of individuals and organizations with competing notions for what bitcoin should be. Plagued by scams and awful leadership, bitcoin has been slow to adapt and slower to regulate. However unlikely, the potential still exists for a hack that would render bitcoin useless, and worse: valueless. Without user-focused development, most bitcoin firms have centered on unregulated trading that has resulted in thefts, scams, and accusations of intentional exit scams. This claim has been bolstered by media coverage of bitcoin as a tool for criminals, like the high profile Silk Road case. Gold is not immune to criticism, however. Too heavy to move large quantities with ease, rare but not all that rare, and difficult to work with when making small or routine transactions, gold is a store of value rather than an everyday means of exchange. Like fine art or wine, the value of gold for investors is long term wealth rather than day to day needs. Is this the opening that bitcoin can fill, providing a secure asset that is better suited for daily exchange? Possibly, but bitcoin will need to work out its own problems with transaction volume and network spam.

Ultimately, believers in gold and bitcoin share many overlapping desires. Escaping from under the thumb of government is a long-held and passionate belief for many in these communities and will shape their future investment. It may be in bitcoin’s best interest to work on fostering a community of asset investors who view it in the same way the gold community sees its chief asset. Bitcoin will also need to overcome development hurdles that are currently held up by poor leadership and reliance on outcast developers. To compete with gold, bitcoin needs more than a large market cap. Bitcoin needs long term stability, willing and capable development, and marketing that captures the movement behind the technology.

Image credits:

Bitcoin with pyramid – Public domain image by Cybrbeast  (Source)

Gold bars – Andrzej Barabasz (Chepry)  (CC BY-SA 4.0)