In the year of 2013, observers of international finance and investors have seen and were astounded by the rise of the value of the Bitcoin (a crypto-currency) to more than $600 from its past value of a little less than $20. This rise has been a result from the general investor hype over Bitcoins together with its unusually large demand from China. This prompted a lot of the investment community, experts and aspiring investors who are investing in hard assets such as gold to think switching to Bitcoin instead.
Because of the inordinate rise of the value, several financial sectors had Bitcoin vs gold debates. They argued whether it is Bitcoin that will give an investor the biggest ‘bang for the buck.’ In other words, people have been starting to believe that Bitcoin is the superior investment that will provide the greatest amount of return for the least amount of time for a specific investor.
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Financial gurus and experts have branded Bitcoin as ‘gold 2.0.’ This means that they believe that Bitcoin (as a currency that is digital in nature) cannot be manipulated by any specific person, entity or organization. They argued that like hard assets such as gold and silver, it can also be ‘mined.’ Therefore, Bitcoins are divisible and scarce at the same time.
Peter Schiff’s last quarter of 2013 statement
As stated, there have been a lot of debates about the usefulness of Bitcoin as a form of investment vehicle for many people. Several months ago (in the latter part of 2013), legendary financial guru Peter Schiff released a video statement entitled “Bitcoin vs. Gold” where he shared some of his thoughts, ideas and reservations about the Bitcoin mania that has been sweeping the world.
In this video, the founder of Euro Pacific Precious Metals (EPPM) stated vehemently that although he feels sympathy with what the community (referring to the Bitcoin) is trying to accomplish, it as a form of investment vehicle is wrong on so many levels.
Gold will always win in the battle of gold against Bitcoin. True, according to Schiff, this Bitcoin may replicate and improve some of the properties of hard assets. However, the problem lies in the fact that there is a property of a hard asset that a crypto-currency such as Bitcoin can never replicate (and it is the most important property): the intrinsic value of the metal and its physical utility in industry (e.g. a highly efficient electrical conductor or its appeal in the making of jewelry). Even by name, this is where industrial as well as social demand will always favor “precious” metals.
Remember, gold has an intrinsic value. In addition, silver also has an intrinsic value. In other words, hard assets have an intrinsic value that a digital asset or currency can never copy. Therefore, according to him, gold has the most value for investors that Bitcoin can never offer. As such, although Bitcoin is winning today, gold is still by far the best investment vehicle for any type of investor. In fact, he claimed that gold still has a tremendous upside as opposed to Bitcoin that already reached its peak levels.
Reactions of the Investment Community: the Bitcoin vs gold debates
According to staunch defenders, to say that Bitcoins have zero intrinsic value is not correct. In fact, such statement is a little bit ignorant. According to them, it will be important to remember that there are two basic facets of a Bitcoin: the first is the currency units (the crypto-currency) and the second is the payment network.
True, the Bitcoin currency units may be worthless. However, Bitcoin as a payment network is a very lucrative endeavor and has vast utility for a person. The reason for this is that the Bitcoin payment network is not controlled by any specific person, state or entity. In this way, only the laws of supply and demand will have control over the market values.
Peter Schiff becomes a Bitcoin merchant in 2014
In May of 2014, Euro Pacific Precious Metals announced that they will be accepting payments (through BitPay, a merchant Bitcoin processor) for silver and gold deals. Does this mean that founder Peter Schiff had just reversed his stance of worthlessness of the Bitcoin? It appears that Schiff does not. The development is a strategy move to take advantage of the peak levels of the Bitcoin and nothing else.
The bottom line
Each side in the Bitcoin and gold debates has argued valid and reasonable points. At the end of the day, the temperament (risk appetite) and available time of a person are the major factors that will determine whether he will invest in Bitcoin or gold.
If the person has high risk appetite and has a lot of time, Bitcoin might be a good fit for him. For example, this may refer to a young professional who is aggressive in investing and can withstand volatilities in the market.
On the other hand, if a person does not have any appetite for risky investments and is already on the verge of retirement, gold will certainly be a better choice for him. This may refer to a 50 year old university professor who is conservative in his investments and cannot stomach frequent ups and downs in the market value of his investment portfolio. In this way, he will enjoy the stability while enjoying steady returns for his retirement. Nevertheless, he or she must buy gold through Bitcoins only by using a trusted gold IRA custodian. In addition, he or she must be very cautious in using Bitcoin-for-gold services such as Coinabul.