As digital currencies like Bitcoin (BTC), Ethereum, and Cardano have become mainstream in recent years, crypto analysts and commentators have posed the question: is cryptocurrency the new gold?
Earlier this year, Goldman Sachs compared BTC to gold, arguing the cryptocurrency would compete with the precious metal as a “store of value,” increasing its market share over time.
Crypto analysts and commentators agree, with many saying it’s only a matter of time before BTC and other cryptocurrencies replace gold as the go-to store of value. With that in mind, it’s a good time to look at whether cryptocurrency is the new gold.
What is a Decentralized Asset?
If you’ve followed cryptocurrencies for any amount of time, you’ve probably seen the term decentralization pop up repeatedly. Decentralization refers to a monetary asset not issued by a central bank or other monetary authority.
The Federal Reserve is the central bank in the US. It manages the country’s money supply and determines how much money the Department of Treasury prints each year. In contrast, no central bank decides how much gold or silver to mint.
Likewise, no centralized authority controls BTC and other cryptocurrencies, which have served as a model and inspiration for many of these digital assets. Given their similarities, it’s no surprise these virtual currencies could compete with gold as a store of value.
Worldwide Acceptance
Although BTC has become a household name and El Salvador recognizes it as legal tender, widespread adoption of digital assets is still in its infancy. Still, many businesses now accept cryptocurrencies as payment for a wide range of goods and services.
As businesses move online and customers seek secure forms of payment, cryptocurrencies have gained wider acceptance. Tech companies like AT&T, Newegg, and Microsoft accept BTC on their websites.
For those who enjoy visiting online casinos, an increasing number of these establishments allow players to use cryptocurrency for deposits and withdrawals. Click here to play with BTC and try your hand at a variety of games.
That’s not all. If you’re in the market for a new car, Tesla allows customers to purchase vehicles with Dogecoin. From insurance to luxury goods, the number of institutions accepting BTC and other cryptocurrencies is growing daily.
Increased Confidence in Cryptocurrencies
If a currency doesn’t evoke confidence, it has little chance of gaining widescale acceptance. Cryptocurrencies have faced this challenge since BTC debuted in 2009 as the world’s first decentralized virtual currency.
Over the past decade, BTC has gained the confidence of millions worldwide, with people flocking to it as an investment vehicle and an alternative to gold and cash.
While some analysts have argued cryptocurrencies have no intrinsic value and their value is tied to speculation, one could say the same about almost any currency. When the US government removed the dollar from the gold standard in the 1970s, some feared the monetary system would collapse.
However, that has not happened because people have confidence in the dollar’s purchasing power. As long as BTC and other cryptocurrencies maintain the trust of large swaths of the public, we can expect them to maintain their value.
Hedge Against Inflation
Inflation has dominated the news cycle over the past few months as prices for food and other goods have increased at a rapid rate. Many analysts thought gold would gain traction, with investors turning to the precious metal as a hedge against inflation.
People have traditionally viewed gold as a hedge against inflation because it has a limited supply, making it a scarce commodity. However, up to now, gold hasn’t taken off as inflation has risen globally. Instead, it has remained mostly stagnant, or its value has decreased.
With gold underperforming, some experts have argued that BTC and other cryptocurrencies could serve as an effective hedge against inflation.
Although BTC’s value has decreased significantly over the past year, it went from being worth less than $1 to more than $15,000 in just over a decade. BTC and other cryptocurrencies could maintain their worth even if fiat currencies decrease in value.
Performance of Gold vs. Crypto
Cryptocurrencies have faced a difficult year, with their value dropping below their peak just a couple of years ago. However, their value may stabilize as time passes and people become more comfortable with the current economic environment.
Similarly, gold prices have experienced a decline during the economic slowdown, proving that the precious metal isn’t always an effective hedge against inflation. Some analysts have attributed the decline to the strength of the dollar.
When the dollar is strong, gold tends to underperform. Both BTC and gold are scarce commodities and are expected to be more inflation-proof than other assets. However, the record rise in prices over the past year has negatively impacted both assets.
As we wait to see how the current economic turndown plays out, people could turn to cryptocurrencies like BTC as reliable stores of value. However, it’s unlikely they’ll replace gold entirely.
