Bitcoin is often contested as the “new gold” by its proponents in the crypto space. This parallel of bitcoin with gold is drawn as a result of its price in the market that currently stands at around $8,000 for 1 BTC. But as advancements in both the technological and legislative fronts are made in the bitcoin world, is it going to replace gold sometime in the future?
Gold has remained to be the standard of representing value since old ages. In the past, it has been largely used to do trade and buy goods. Although the direct usage of gold to buy goods and perform everyday monetary actions became obsolete as the paper money evolved, it is still a valuable asset that is largely used to back fiat currency by the banks.
Gold is a physical commodity that carries value intrinsically as people agree upon it. The most important factor here to note is that people DO actually consider it to be a valuable commodity. Due to its largely stable value, gold is also often termed as a “safe” investment in times of extreme monetary crisis. But what if there is an alternative to gold? A commodity whose value is accepted by people universally even if it is not in a physical state? There looms a chance that it might become the new favorite of the people and this exactly what bitcoins plans to do.
Bitcoin emerged on the global financial scene after the economic recession of 2008. As trust in the banking system dwindled, people started to look for alternatives to this centuries-old system and riding on the back of the revolutionary technology of blockchain came bitcoin. It provides the world with a decentralized peer-to-peer currency framework that is not controlled by a central authority. Just like gold, bitcoin represents something that carries value, upon which people agree, with a slight difference that it is in a digital form with no physical presence. It is an internet-based global digital currency. Gold carries value in the physical world while bitcoin carries value in the digital world and thus, parallels get drawn automatically. The title of “digital gold” is something that is often used by some of its proponents to explain the digital asset in simple words.
sound ON! pic.twitter.com/SEGAmMItsE
— Grayscale (@GrayscaleInvest) May 1, 2019
Previously talking to BlockPublisher while answering the question of whether bitcoin is the digital gold, Jorge Farias, the CEO & Founder of Cryptobuyer stated:
According to his initial conception, we believe that gold historically began to be valuable because people treasured it, then because of its decorative qualities and wealth demonstration, and nowadays even for its applications in technology and medicine. Bitcoin is seeing that same evolution and will eventually become a standard and benchmark measure.
Professor François Longin from ESSEC Business School said regarding bitcoin’s viability to become the digital gold:
Bitcoin can be considered as the new digital gold as it presents a low correlation during extremely volatile periods, especially stock market crashes. However, gold is still important for portfolio risk management. Actually, both Bitcoin and gold can be used together (in the same portfolio at the same time) to provide diversification benefit for investors.
Although there are strong tendencies shown by bitcoin to become the next gold standard, there are certain limitations associated with it that need to be resolved first before bitcoin supplements gold, or even replaces it.
It has just been over a decade since bitcoin erupted out on the scene and we are talking about replacing an asset that has remained to be the financial standard since almost the beginning of time. Since the initial use-case of bitcoin was driven by its usage in illegal activities, its major connotation in the media and the general public is negative. Lack of regulation has allowed for many scam, frauds and illegal factors to seep into this nascent space. If bitcoin needs to adopt the title of the new gold, regulatory clarity needs to be achieved as soon as possible. In many countries, bitcoin is even banned. WIth regulatory clarity, the path for bitcoin to take up the charge of the new gold will become somewhat smooth.
Volatility is another big issue surrounding the asset. Gold’s stability is what makes it attractive in the investor’s eyes. Unlike gold, bitcoin’s price is highly volatile and in addition, is prone to manipulation. Over the past weeks alone, bitcoin has made more than one thousand dollars jumps in its price. Since speculation is the only thing holding up bitcoin’s price, volatility comes in naturally as there is no large scale adoption across the globe. Since the market cap is very small, big whales in its ecosystem also use pump-and-dump strategies to manipulate the price of bitcoin artificially in their own favor.
Overall, it is still early for bitcoin. Just like every other technological innovation, it is going through its period of evolution. Issues are there, but with the pace at which the technology underneath bitcoin is progressing, it seems that bitcoin will get more and more mature with time. With regulatory clarity in place and increased adoption, bitcoin’s role in the financial world as the digital gold will seemingly become inevitable. Although gold has the upper-hand right now, in the future it might just be the other way around if things go perfectly in all dimensions for bitcoin.
READ ALSO: Will Bitcoin (BTC) Ever Get Rid Of “The Digital Gold” Title?