Gold has been used as a store of value and means of exchange for centuries. In addition, because of its features, it is considered as means of protection against crisis and to avoid volatility in the investment portfolio. In recent years, in the face of a trade war scenario between China and the United States and a possible financial crisis, billionaires and leading hedge funds managers have been steadily adding gold to their portfolios. Would the bitcoin be a better option than gold for that purpose?
Given that much of the market value of gold is derived from its application as a store of value and not from its industrial application, economic downturns caused by global crisis often have an adverse impact on its market value. As a result, gold is one of the preferred assets of investors in recession-imminent scenarios.
The bitcoin can follow this same path and be used as a store of value and protection against inflation. Although the crytocurrencies are very volatile in the short term, they have a tendency of recovery in the long run. For two reasons: the reward of the miners falls over time, so it is not worthy to mine new bitcoins as time goes by. In addition, the number of mined bitcoins has a limit: 21 million. Therefore, as new people enter the market, with the limited offer, the price tends to rise.
In addition, nowadays the bitcoin doesn’t have any correlation to traditional markets. In other words, in the event of a major global financial crisis, falling prices of assets and liquidity problems, in the long run this cryptocurrency would still follow its natural path. Therefore, it can function as a store of value as long as the deadline for withdrawal is longer than 4, 5 years.
Bitcoin is better than gold because it is an instrument of freedom
It is important to point out that the bitcoin fulfills diverse functions, which grants it unique advantages compared to the metal. More than a store of value, it is an instrument of privacy and freedom. It makes up a part of the investor portfolio that can never be confiscated. That is to say, it is out of reach of any kind of government, regardless of what happens: wars, confiscation, etc. This type of benefit does not exist in other assets.
Therefore, whatever happens, if you keep your private key, the bitcoins will always be in your possession. Obviously, this brings other precautions: it is necessary for example to be diligent with your private key. If the owner dies, it must be defined in advance who should keep the bitcoins, how they will be accessed, etc.
It is true that the main managers of more traditional funds still do not invest in the bitcoin. First of all, it would generate volatility in the portfolio that could go against the rules of the fund. Besides, in some countries the manager cannot add cryptocurrencies to a fund, as it is in Brazil, because they are not considered a financial asset. However, some funds with more specific destinations have been adding bitcoins to their portfolios.
In the light of these facts, it is indisputable that the bitcoin is a store of value, protection against crisis, inflation and the tyranny of governments and banks. Having the advantage of being more accessible to the mass of investors, which do not even need to hold a bank account to own some bitcoins.