For the first time, digital currency overtook the precious metal in value
The price of the first cryptocurrency introduced to the world keeps surprising us. Since its appearance, the value has risen and fallen several times. Even though Bitcoin is considered to have the most volatile trading history, it has brought income to many people.
Now the price of BTC marks considerable growth compared to the previous years. Notably, some enthusiasts started calling Bitcoin “Digital Gold” since it burst on the scene. Could you imagine that cryptocurrency has even gone ahead with the precious metals in value? What is better to invest in gold or digital gold? Read on to discover why it’s happening and until when it will continue.
What does the price of Bitcoin depend on?
Bitcoin represents virtual currency designed by Satoshi Nakamoto in 2009. Bitcoins are generated by miners, people who check the transactions. Digital assets are transferred via secured technology called Blockchain.
Given that Bitcoins are not controlled by any governmental institutions and are not issued by a central bank, the price is determined mostly by demand and supply. The higher is the demand, the higher is the price.
It’s important to note that Bitcoin is similar to the precious metal in the way that it also has a limited total supply, which equals 21 mln tokens. In November 2020, there were 18.5 mln BTC minted. So it leaves 2,5 mln to mine.
How does it happen? Blockchain generates each block every 10 minutes. As soon as transactions are verified by one member of the mining pool, they receive Bitcoins as a reward.
The amount of BTC you can get as a reward for block mining halves its size every 4 years. Hence, in 2012 reward it equaled 25.00 BTC, in 2016 – 12.50 BTC, in 2020 – 6.25 BTC. Thus, the entire supply of Bitcoin will be out in circulation by the year 2140.
What are the factors influencing the price of BTC?
However, there are also many other factors influencing the value of BTC. Among them we could name:
- The cost and difficulty of mining;
- Big investments of prominent companies like Tesla Motors;
- The rewards given to the miners for verifying BTC transactions;
- The quantity of other virtual currencies;
- The activity on crypto exchanges like CEX.IO;
- Regulations controlling its mining and sale.
What defines the price of gold?
Gold is a strong asset. Why is it so? Surely, you know that gold supply is not infinite, and no one knows when it finishes. As well, gold cannot be manufactured. Thus, it will always be of a high value.
In the same fashion, as it was mentioned above, there are only 21 mln Bitcoins that could be mined which raises their store of value. In 1971, President Nixon decided to divide the gold and the U.S. dollar. Since then, the price of gold is supported by federal debt.
Correspondingly, gold tends to sustain market fluctuations and usually remains static. However, the price fall/rise mechanism is the same as for the BTC: the more people fund gold, the higher its price goes.
BTC vs Gold: What to buy?
Since ancient times gold was appreciated by all peoples of the world. For the last decades, it has been considered a stable and secure asset to invest in. In its turn, Bitcoin was developed over a decade ago, and some people still have doubts concerning its reliability. However, for the last year, BTC has gone up in price by 49%.
It is a good idea to convert money into something that is stable and never loses its value. Thus, gold is always worth investing in. According to the World Gold Council’s figures, 190,000 tonnes of gold had been mined for all history as of the end of 2017.
It can be noted that many recognize bitcoin as a haven asset on a par with gold due to inflation caused by the COVID-19 pandemic, and, presumably, President Biden’s new infrastructure programs to be funded mainly by increasing taxes for corporations.
Currently, the price of gold per ounce is $1747,27, while BTC is around $60,000. Comparing the market capitalization of Bitcoin and gold – it is important to note that the capitalization is higher for gold, so many investors prefer this asset.
Let’s compare these two assets according to the most important criteria:
Security and transparency
As a decentralized asset, Bitcoin is considered encrypted and safe. The algorithms of its creation are so complicated that Bitcoin is also impossible to corrupt or fake. However, it’s still possible to steal digital assets due to the vulnerability of the computer systems of cryptocurrency exchanges, applications, and wallets.
Recent researches have shown: cybercriminals cause serious damage to ICOs. They attack founders, community members, and platforms. In 2017 more than 10% of funds raised through ICOs were stolen, while 80% of projects disappeared with the money without fulfilling any obligations towards their investors.
The mechanism of gold trading is tuned like a clock: all the supplies are tracked and weighted, which makes it almost impossible to steal or fake. However, there were some cases of fraud, and it still remains a good asset for investors to put money into.
Digital currency is volatile by its nature. This is the biggest risk factor influencing the decision of investors whether to fund it or not. If we have a closer look at the Bitcoin history, we’ll see that the price reached pics and fell down several times.
Namely, in 2018 BTC cost $20,000, while in 2019, the price fell to $4,000. If we look at a logarithmic scale over a decade we’ll see that Bitcoin is showing an uptrend and its growth is easier to predict due to halvings, rising demand, increasing scarcity, and augmenting of the dollar inflation.
As gold depends on the U.S. currency, its price goes up when inflation rises. BTC’s volatility is not relevant for gold for the reasons mentioned above so that we can assume it as a safer asset.
In a nutshell
Change is all around us, and who could imagine that virtual currency one day overpasses gold value? We have compared two popular assets for you to show not only all their advantages but also weak points.