Gold has been the main defensive asset for decades now and Bitcoin is considered the main competitor to it in terms of digital currencies, but isn’t Bitcoin actually a speculative asset? Let’s discuss.
The origin of Bitcoin
Satoshi Nakamoto wanted to make his dream of creating a payment method that lacks the flaws or regular fiat money come true and that is where Bitcoin started. The main problem we face with fiat every day is inflation and that is what Nakamoto was dealing with.
This is where we get to common things between the two and there actually are some.
To fight off the inflation, Nakamoto had to limit the emission to 21 million to stabilize the price and hold it on the same level as before, when the miners get the last (the last successful Bitcoin mining operation is calculated to be in 2140).
Gold is a limited resource as well that is why the more gold humanity gets from inside the Earth, the less there is left for anyone else, so the asset wouldn’t inflate in any case.
Increasing mining complexity
Rewards for mining Bitcoin are constantly decreasing because of the halving algorithm that was also created by Nakamoto. That makes the popularity of mining the coins decrease too, leading to less machines that are ready to be engaged and higher requirements in terms of executed operations per machine.
Gold doesn’t appear in the deposits that are already engaged in mining. That is why finding new ones and developing them becomes more complicated and less profitable, making the resource hold its market value as well.
Bitcoin has been approved as a value holding asset, making the loyalty that society shows to it quite similar to the one, gold gets.
However, Bitcoin and gold aren’t the same thing.
Even though Bitcoin was created as a tool for payment and money storage, that will show stability during the market fluctuations, it still shows high volatility during a bear market. Most of the economic analysts say it is more similar to the tech sector of the stock market, which is considered to be one of the riskiest ones. That is why banks aren’t convinced of Bitcoin’s defensive capabilities.
Still, during the 2020 crisis Bitcoin was the second defensive asset after gold and showed fantastic stability results.
We are sure Bitcoin will last much longer than expected and is going to share the place of the main defensive asset with gold. However, those two will have different purposes and for sure won’t compete with each other.