Bitcoin Poised to Overtake the Gold Market

Bitcoin has been dubbed the replacement of gold and the digital market’s non-sovereign evolution of currency. For Bitcoin to successfully replace gold, it would need to increase 25 times from the current level, which might seem like an impossible feat. However, a comparison between the investments that took place between gold and Bitcoin in 2015 have shown that Bitcoin would likely have outdone investments into gold by 98,5%. According to market statistics, almost 50% of millennials prefer bitcoin to real estate, stocks and even gold. As the technological age advances towards occupying every facet of our daily lives, millennials are confused by the fascination that gold held for previous generations as either a hedge against inflation or store of value.

Bitcoin’s Astounding Growth

The surge in 2020, that has been described as astounding after its 94% return in 2019 and has exceeded its previous all-time high value of $19 783 in under three years after the currency became a ground-breaking bull market in 2017. As a result of its exponential growth, the asset class has shocked many sceptics and has even converted a few of them into crypto traders. The latest cryptocurrency to hit the market has since become the recipient of substantial institutional investments this year, with renowned companies such as MicroStrategy and Square investing a combined total of $525 million. Analysts have made some observations regarding this modern phenomenon and have stated that while the notion of bitcoin surpassing the $9 trillion market cap on gold seemed far-fetched a mere few years ago, the exponential growth that it has experienced since 2017 has resulted in this unrealistic outcome slowly becoming a reality. The world is currently experiencing one of the most unusual and unique macro-economies. Average investors are fearful of inflation, regardless of whether the inflation is seen or not. Thus, this fear has led to substantial capital flows into cryptocurrencies and other inflation-hedge assets that are unrelated to the traditional movements of the market and economic fluctuations to better protect their wealth. A combination of central bank stimulus and investors’ fear of inflation has led to gold and bitcoin assets outperforming other commodities and equities dramatically.

In previous years, gold had maintained its value and built its reputation as being the most sought after commodity on being a recession-proof asset that has held value for thousands of years. On the other hand, Bitcoin is considered to be in its infancy and has only been around for over 10 years and account for about 3% of the $9 trillion market cap of gold. To surpass the market cap on gold, bitcoin would need to rise by a further 25 times. In terms of monetary value, this means that the price of the biggest cryptocurrency would need to increase from $19 500 to $31 300 in order to account for 5% of the gold market’s value. While the jump might seem steep at first, bitcoin’s bull market that is prone to surges could likely reach this value in a year or two.

Trust is Vital

For investors, trust is as vital as it is for traders who make use of the official Bitcoin Compass website. Investors have begun to lose trust and faith in fiat currencies that are subject to extreme inflations by the unrestrained printing of money at the central bank and government stimulus packaging. Bitcoin has risen in popularity as it has been designed to avoid these unfavourable aspects. As part of its design, there will only be 21 million coins issued in the world, with the creating of more coins being impossible. There are currently 18,4 million bitcoins in existence today which means that high demand equals an increase in value. New coins are only entered into the market on a schedule that has been predetermined and coded into the software. These entrance events cannot be changed with less than 51% of the network agreeing to the proposed changes which means that the possibility of an alternation is highly unlikely. Gold and bitcoin are serving as a means to demonstrate sound money principles, with bitcoin being the digital mean and gold being the analogue. The two assets share similarities in that there is a finite amount of each asset and they have both caught the interest of investors who are fleeing traditional investments such as stocks and bonds.

Other Contributing Factors

Another key contributor to the rapidly increasing success of cryptocurrency is transparency. All transactions can be viewed on the cryptocurrency’s blockchain. When comparisons were conducted into gold and bitcoin investments in January 2015, the differences have proven to be stark. Bitcoin outperformed gold by 98,5%. Corruption, inadequate money policies and inflation rates have all destroyed the purchasing power of currencies over the last 50 years. It is for this reason that many investors are pulling their investments into fiat funds and have directed their energies to Bitcoin instead.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes