In the last couple of years, bitcoin has emerged as an alternative investment option. Whether bitcoin is a stable investment option, one need to evaluate the following elements of the money:
If I talk about Gold and Crypto, both are having a store of value and a unit of account. However, Crypto has been facing significant regulatory and volatility issues and that raises doubts in the mind of investors whether crypto can be a suitable medium of exchange or not.
Bitcoin has limited supply viz. 21 million. This number cannot be changed. The supply of BTC only grows at a gradual, predictable pace (until it reaches 21 million). This makes bitcoin an attractive asset. The way bitcoin is used in various transactions through blockchain, it could be the future of money.
Gold is an asset for preserving your long-term wealth. It has maintained its value for thousands of years in various phases. Historically, gold has not seen much volatility as compared to other currencies. Gold has a strong global market and carries a high level of trust amongst people.
Historically gold has been considered a key asset to hedge against inflation during a highest inflationary period. However, in recent years, investor considered Bitcoin as an alternative to gold and a kind of digital gold. Bitcoin can be considered as a store of value as it is a service commodity which helps in performing peer to peer transaction i.e. without any central approval.
In the world of cryptocurrencies and digital tokens, bitcoin is the king and can be considered as a digital gold. Gold is not considered as form of currency but it has a store of value. If store of value is decided based on stability than bitcoin loses points, however when it comes to using bitcoin as a currency, it is ahead of Gold as Gold is not used as a currency. Bitcoin certainly has a store of value, however, it would be important to see how volatility is managed in the longer run.
Further, there is a little correlation between equity and Bitcoin. Gold provides hedging comfort to equity investor. Considering the volatility involved in bitcoin, bitcoin cannot provide any hedging comfort to equity investors. This can be a critical point when it comes to choosing between Gold and Bitcoin as a store of value.
Current Scenario
Currently, the high divergence between inflation and bond rates, presents an interesting scenario. Ecoinometrics, in a recent newsletter, pointed out that this divergence would mean that betting on gold and Bitcoin outperforming “seems like a good idea but for different reasons.” Talking about Bitcoin, it said,
“Bitcoin itself tends to be uncorrelated to the real yield. But a negative real yield environment created by high inflation is good for the narrative.”
Source: Ecoinometrics
Comparing BTC with gold, which is all about changes in real yield, the newsletter pointed out that since the beginning of the year, we have moved into very negative real yield territory. However, we are yet to see a big rally.
Bitcoin’s price already depressed, investors might decide to bet on Bitcoin rather than gold as a store of value. According to the analyst,
“If that’s the case then it would be the first time that a Bitcoin rally is triggered by negative real yields. In reality, such a move would still qualify as an adoption play since you could see that as a transfer from gold to Bitcoin.”