Above all, don't buy gold!

Have anyone ever advised you to buy gold to protect yourself from inflation? You would do well to read this article.

A big difference

The supply of bitcoins is absolutely limited. But gold is only relatively rare.

Indeed, bitcoin (aka digital gold) is capped at 21 million BTC, and nothing can ever change this limit. Moreover, the already lost bitcoins make them even rarer.

This is one of the reasons why bitcoin is often referred to as digital gold. It uses 21st century technology to mimic the valuable properties of physical gold from days gone by.

While both types of gold can convincingly serve as a store of value, there are also significant differences between the two.

Despite the similarities between bitcoin and physical gold, bitcoin is superior due to its truly limited supply. There will never be more than 21 million bitcoins, making it a superior asset.

Bitcoin and digital gold?

One of the main reasons why bitcoin is often nicknamed digital gold is its ability to leverage 21st century technology to reproduce the valuable properties of physical gold. This innovative approach distinguishes bitcoin, which impresses with its ability to adapt and evolve in the digital age.

Gold is also not a product like any other. While many believe that gold is limited, in reality gold mining activities can change the supply. For example, the gold discovered in Uganda in 2022 almost equaled the total amount of gold existing on the surface at the time.

Bitcoin and volatility

If bitcoin has certainly experienced its share of volatility (particularly in its early years), its value has generally tended to increase over time as it has been adopted. On average, he reported 671% per year (in February 2024) since its creation.

The reason for this growth: Proponents of digital gold believe it is a better store of value and protection against inflation than physical gold.

Gold has proven to be a relatively reliable investment over time and is often considered a safe haven in the event of market volatility.

Peter Burns writes in Money: “Gold is not an income-generating asset, but it can serve as a store of value when its price appreciates over time. The average annual return of gold globally between 1971 (the year the United States stopped linking the price of gold to the dollar) and 2022 has been 7.78%.”

Meanwhile, the value of bitcoin has skyrocketed.

Factors that affect the price of BTC

The role of demand

Like any other asset, the value of bitcoin is influenced by the age-old forces of supply and demand. By definition, supply is always limited, so that its value increases when demand increases.

Price and demand have no impact on the bitcoin money creation program, which remains constant regardless of market dynamics.

Geopolitics

The value of digital gold increases in response to positive news, adoption by large companies, and regulatory approvals that boost investor confidence. Conversely, negative news, security breaches or regulatory crackdowns can cause the price of bitcoin to decline.

Inflation rates, economic stability, political uncertainty or currency fluctuations can all influence the perceived value of bitcoin as a store of value or hedge against traditional financial systems.

Halving

Bitcoin supply is limited, with a total cap of 21 million tokens. Periodic events called “halvings” occur approximately every four years, reducing the rate of creation of new bitcoins. Historically, this phenomenon preceded bitcoin bull markets.

Factors that affect the price of gold

The role of supply and demand

Like bitcoin, the price of gold is influenced by supply and demand in the global market. When demand exceeds supply, the price tends to increase. One of the main differences is that it can lead to an increase in gold mining and production. Bitcoin, for its part, has a fixed limit.

Investor sentiment

Gold is often considered a safe havenn case of economic uncertainty or market volatility. This increase (or decrease) in uncertainty can have an impact on its value.

Interest rates and inflation

When interest rates are low (or inflation is high), investors may turn to gold as an alternative investment, which can increase its value.

Exchange rate

Changes in exchange rates can affect the price of gold. When the value of a currency declines relative to other world currencies, ithe cost of gold in this currency may increase.

central bank

Central banks often hold large amounts of gold in reserve. The purchase or sale of gold reserves by central banks can impact the supply and demand dynamics in the market.

Industry

The demand for gold for jewelry store and other industries can also impact its value.

Bitcoin and the limit of 21 million

The existence of predictable supply prevents inflation and ensures that an asset retains its value.

Bitcoin has a limited, capped supply – only 21 million units will ever exist since this supply cap is hardcoded into the rules of its base protocol. Limited supply is the key to bitcoin's long-term value.

Gold is also rare because it is difficult to find and is usually only available in low concentrations because a large amount of rock must be processed to obtain it.

The scarcity of gold, the fact that it is not renewable and the difficulties encountered in obtaining it largely explain the value of gold.

However, the amount of gold available at any time fluctuates. Investment researcher Nathan Lewis writes: “In terms of availability, [l’or] is very abundant. We actually have twice as much gold on the surface today as we did when the world left the gold standard in 1971. We have seven times as much as we did in 1910.

Bad news for gold's ability to serve as a store of value: In June 2022, Ugandan authorities revealed a significant discovery of approximately 31 million tonnes of gold ore in the country (320,158 tonnes of purified gold). The approximate value of this ore was 12 trillion dollars.

This discovery alone represents more than the total amount of surface gold counted in the total supply. As this gold continues to be collected, it will significantly dilute the scarcity properties of physical gold.

Bitcoin and divisibility

Great divisibility allows divide an asset into smaller units, making transactions easier, regardless of the amount.

Bitcoin is much more divisible than most currencies. A bitcoin can be divided up to eight decimal places, with units called satoshis. This helps control costs.

If you divide thegold in small quantities you will pay more. A hundredth of an ounce of gold will cost around $35 online, i.e. a price of $3,500 per ounce of gold, which represents a markup of 75% over the real price of gold at that time.

Buy BTC, not gold

Consider your personal preferences and risk tolerance when considering the choice between bitcoin and gold. If you love technologye and are comfortable with the digital world, bitcoin may be perfect for you.

Gold may be a better choice if you want physical currency and prefer tangibility.

Diversification is always possible. Consider allocating part of your wealth in digital gold, which offers liquidity, ease of transfer and growth potential. Add physical gold to it to add an extra layer of stability and protect you against the economic uncertainties and volatility of bitcoin.

Michael Saylor, founder of MicroStrategy, explains:

“Bitcoin is more efficient than gold. It is more efficient than fiat currency. It is more efficient than storing your money in an apartment rented by Airbnb. It is simply the most efficient energy system, and rational people around the world look at it and say: “Why would I not want to store my money in a property that is the supreme property of the human race?

Jurrien Timmer, director of Global Macro at Fidelity, found that just a 1% allocation of a traditional portfolio to bitcoin produced similar effects to a 4% allocation to gold. In other words, By including bitcoin, investors could potentially do more with less in their “store of value” portfolio allocations.

Cathie Wood's Ark Invest team discovered that the optimal allocation to bitcoin is 19.4%.

Bitcoin is gaining popularity as a long-term investment option and could outperform gold. However, do your own research, examine your risk tolerance and invest accordingly.