Bitcoin or Gold
Since its inception in 2008, Bitcoin has experienced spectacular growth, but can it truly be called a safe haven asset like Gold? We have my doubts.
A safe haven asset should reliably preserve value over time. While Bitcoin has seen impressive rallies, it has also suffered sharp declines. For example, it dropped 60% from $17,249.92 on 12 December 2017 to $6,852 by 6 February 2018; or even further over 80% by 2019.
It reached a high of $67,617.02 on 9 November 2021, and today it sits around $64,000, but it has spent much of the second half of 2022 well below $26,000. Such volatility undermines its ability to serve as a stable store of value.
By contrast, Gold’s price movements have been far less dramatic in times of crisis. Its largest recent decline was a 44% drop from $1,695 per ounce in January 2013 to $1,200 in December 2015, but it has since recovered, reaching $2,622 per ounce.
Both Gold and Bitcoin carry theft risks, but Bitcoin’s reliance on external infrastructure, such as electricity and computing power, poses additional challenges. Without these, Bitcoin becomes inaccessible. Gold, on the other hand, retains its value and can always be physically traded, even if in a stone age. Regardless of how much Bitcoin one owns, its value is effectively zero without the infrastructure to access it. In contrast, a trillion in Gold can still be sold for tangible value even if a fire sale. Additionally, losing access to your Bitcoin account due to forgotten passwords or lost credentials is a risk that doesn’t apply to Gold.
Gold’s deep global market ensures liquidity, even for large transactions, without causing significant market instability. The market capitalisation of Gold is currently estimated at around $12 trillion, whereas Bitcoin’s market is much smaller at approximately $1.25 trillion. Liquidating large amounts of Bitcoin could lead to price collapses, whereas Gold’s established market can accommodate high-value trades with far greater stability.
Bitcoin holds promise, but its volatility and reliance on external infrastructure limit its role as a reliable safe haven asset. One potential solution could be a cryptocurrency tied to physical Gold, but that introduces the risk of trusting auditors. But for now, Gold remains the more dependable option for those seeking long-term value preservation in uncertain times.
