Digital gold: understand how it relates to bitcoin

Bitcoin’s limited supply resembles the scarcity of the precious metal in nature; that’s why many consider it the “digital gold”

Editorial Staff  /  April 27, 2022
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Gold is a naturally scarce metal that cannot be “manufactured”. Because it is rare and does not readily corrode, it has been used throughout history as an instrument of power, a means of payment, and more recently as a store of value. After all, its scarcity – today, it is estimated that there are only 50 thousand tons of underground reserves worldwide – is what guarantees its value. I

It is the same principle as bitcoin, which has a limited supply of 21 million, 19 million of which have already been mined. As a result, BTC is becoming a good alternative as a store of value and is also being called digital gold.

Michael Saylor: “Bitcoin is the digital gold”

This is how MicroStrategy CEO Michael Saylor defined the leading currency during a Valor Invest live last year. “Bitcoin is the digital gold. And it’s more than clear that digital gold is a better idea than gold itself”.

According to him, bitcoin is a unique asset, so MicroStrategy decided to invest in it. “No other asset will be made only 21 million times”, he pointed out. Before this decision, the company evaluated various investments, such as real estate, stocks, works of art, and even sports teams. But, according to Saylor, BTC proved to be the best alternative to avoid losses and capital devaluation.

Also, last year, Swiss bank Julius Baer released a report to shareholders highlighting that while bitcoin does not have the same characteristics as gold, it has the potential to change in the future. “While regulators remain very critical about it, companies seem much more open to exploring the potential of the technology, particularly around decentralized finance (DeFi)”, the document stated.

Bitcoin’s volatility is not a hindrance

But while Saylor and other crypto market enthusiasts defend the idea that, yes, bitcoin can be considered digital gold, there are controversies, which mainly point to the volatility of the currency as an obstacle.

In comparison, gold, for example, is a store of value and behaves like a currency without inflation. Thus, when central banks set interest rates low relative to inflation, holding gold instead of fiat currency becomes more advantageous. On the other hand, Bitcoin tends to fluctuate according to market conditions, such as regulation policies forecast or restrictions on use by governments, adoption by companies, and advocacy by public figures, among other reasons.

But, according to Transfero, although the cryptocurrency is very volatile in the short term, it shows a tendency to appreciate in the long term, either because of the limited supply or the reward for miners, which falls over time, making it increasingly less worthwhile to mine new bitcoins. “Therefore, as new people enter the market, with the limited supply, the price tends to rise”,  said the head of Investments at Transfero, Carlos Russo, in an article published by PanoramaCrypto. For the expert, bitcoin is even better than gold.


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