Gold vs Bitcoin Part 2
No counterparty risk for Bitcoin
Why Bitcoin Wins
“I Love Gold!” Says Goldmember from Austin Powers
And we all do, but we don’t have to go all in just because it’s a beautiful metal. If you’re a “gold bug,” understand that I’m not attacking your favorite investment. I still think it’s great to have in your portfolio. Just see this article as an argument for why you should diversify that portfolio into Bitcoin.
Last week I released Part 1 of Gold vs Bitcoin. I highly recommend reading that article before going any further.
Bitcoin Flaws?
Before we go on, let’s acknowledge what many people see as Bitcoin’s flaws and address them.
Volatile price. If you watch the charts, $BTC can drive you crazy. But if you zoom out, you’ll see that Bitcoin has maintained a 58% CAGR (Compound Annual Growth Rate). 1 Gold, on the other hand, has only experienced a 13% CAGR. The “security” of gold is offset by its lower returns.
It’s new. This is true. Bitcoin isn’t even 17 years old yet, while gold has been used as money since the ancient Egyptians. 2 The advantage of being new is that Bitcoin was built for the internet era and for digital payments. This makes it light, easy to carry, and easier to secure.
Not tangible. Gold can be used for jewelry, dentistry, and electronics, while Bitcoin only exists digitally. Bitcoin gives up the tangible reality you can hold in your hand so that you can send value anywhere in the world without banker hours and for minimal fees. Did you know that if you wanted to ship five million dollars’ worth of gold overseas, you’d need to pay about $6,500 in insurance? 3 That doesn’t even include shipping costs or the time it would take. But sending five million dollars’ worth of $BTC over the Bitcoin network would cost only $0.90 today. 4 You give up tangibility for digital usability.
Bitcoin’s Biggest Advantage Over Gold
In theory, gold does not have counterparty risk. You can hold physical gold in your hand and transact with it. But in practice, gold begs to have trusted custodians.
Large amounts of gold are hard to hide, so you must store them in a vault. You could have your own vault, which might work if you only hold a small amount of gold. But for those with large holdings, third parties are required to guard and insure it.
Online transactions with gold are impossible unless you use a third-party custodian who offers that service.
It’s also impossible to know how much gold exists on Earth or in the universe, while we know exactly how much Bitcoin is in circulation. Counterparties such as central banks, governments, and institutions purposely obscure how much gold they hold (a side effect of counterparty risk), but this is impossible with Bitcoin.
In short, Bitcoin’s greatest advantage is that counterparty risk is unnecessary. Yes, some people foolishly store their $BTC on centralized exchanges like Coinbase, but it’s completely unneeded. This happens only because of a lack of education, which is why I started my Crypto Confidence class on Skool.
Users can easily store Bitcoin in their own wallets, fully under their own custody, send Bitcoin to any address, and receive from anyone as well. Counterparty risk simply isn’t required. For large holdings, users can even set up multisig wallets, where multiple entities must sign to authorize a transaction. This gives the security of a trust without custodial risk.
In other words, counterparty risk is unnecessary with Bitcoin and only exists artificially when people introduce it. This makes Bitcoin more sound as a monetary system than gold because it’s harder to manipulate while still offering the advantages of digital money that gold can’t provide.
If we’re ever going to have sound money again, it won’t come from gold. It will come from Bitcoin.
Crypto Confidence Watchlist
I’m currently watching Litecoin. I have a theory I call the “Good Bones Theory,” but I’m still developing the full thesis. I’m looking at Litecoin because it has underperformed in recent years, which could mean it has room to grow. Its all-time high was over $400, and today it sits around $100. Is this a coin to avoid or a project ready to rebound? I’m not sure yet, but I’ll be releasing an upcoming article about it soon. Feel free to share your thoughts on Litecoin in the comments below.
Final Word
“I love gooold! The look of it, the smell of it, the taste of it, the texture.” – Goldmember
DISCLAIMER: This article is for informational and educational purposes only and should not be construed as financial, investment, tax, or legal advice. The author is not a licensed financial advisor, and nothing in this article constitutes a recommendation to buy, sell, or hold any cryptocurrency, gold, or other asset. Cryptocurrency investments are highly volatile and risky, and you could lose all of your invested capital. Past performance does not guarantee future results. Always conduct your own research and consult with a qualified financial advisor before making any investment decisions. The author operates a paid cryptocurrency education course and may hold positions in assets discussed.
https://www.investopedia.com/terms/c/cagr.asp
https://www.metmuseum.org/essays/gold-in-ancient-egypt?
https://online.kitco.com/faq/shipping-international?
https://bitinfocharts.com/comparison/bitcoin-transactionfees.html?
This was really interesting