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In the battle between Bitcoin and gold, it can seem like Bitcoin fans are die-hard futurists and goldbugs are die-hard traditionalists who just won’t let go of their yellow metal. Both camps feel convinced that one or the other will be worthless in the end, while the other reigns supreme. It’s hard to predict the staying power Bitcoin will have. The underlying blockchain technology undoubtedly has a long and disruptive future, but is cryptocurrency a fast-fading fad?
One of the biggest struggles Bitcoin has had is transaction utility. Despite the huge upsurge in the use of cryptocurrencies, Bitcoin continues to struggle to gain acceptance as a form of online payment. There are a few reasons why this remains a problem:
#1 Transaction Fees – Bitcoin promised independence from financial institutions. Digital trust is a big part of disliking banks, but for the average consumer, transaction fees remain their biggest sticking point with major financial institutions. Unfortunately, banks have been quicker to reduce fees on e-transfers and online payments, while Bitcoin transactions can be expensive. During its peak period in late 2017 and early 2018, average transaction fees were over $30, driving some who already did accept it to stop. Even with fees now under a dollar, most consumers don’t pay anything to use debit or credit cards online.
#2 Volatility – Consumers may not be interested, but businesses could definitely stand to save money on transactions now that Bitcoin transaction fees are under a dollar. The problem is finding employees, suppliers, or partners willing to accept the volatile cryptocurrency. No one wants to be paid in a currency that could lose half its value in a week.
#3 Investors – When people like Steve Wozniak say “Bitcoin is pure digital gold,” and that it could become the “single currency of the internet and the world,” they seem to have forgotten that gold isn’t used as currency. It’s better than currency. The American dollar could hit Argentinian-levels of inflation and people would still use it to buy gas and groceries rather than using gold wafers; it would take the kind of apocalyptic event that would knock the power out (and your Bitcoin Wallet with it) for people to go back to trading silver and gold for basic goods. Investors buy gold coins to protect their wealth in savings. They expect long-term appreciation, not the ability to buy gas with it. Markets haven’t decided yet whether Bitcoin is a digital version of gold or a currency.
#4 Security – Cryptocurrencies are particularly vulnerable to a thing called the 51% attack. Bitcoin’s value and size means that it’s never happened to Bitcoin, but other cryptocurrencies have suffered the attack. When users who own more than half of the coins in the network, they can perform a 51% attack, halting transactions and modifying the most recent ones, such that they could double-spend coins.
The question everyone’s asking is what’s Bitcoin going to be worth long-term. There are two camps: those who think Bitcoin will be worth $100 and those who believe it will be worth $100,000.
Let’s look at the two scenarios.
Bitcoin at $100
Bitcoin has become a useful tool for businesses and maintains a niche position among consumers. It helps businesses cut down on transaction fees and it’s a largely utilitarian, business-friendly, decentralized currency. It’s well-regulated and secure.
Bitcoin at $100,000
The Bitcoin limit has been reached. What’s on the market is all there will be. Other cryptocurrencies continue to grow but Bitcoin remains the gold standard and the primary currency on the internet. There’s widespread Bitcoin hoarding by private investors and large firms trade directly in Bitcoin the way they do in gold.
Gold Is Irreplaceable
The ten-year question is a big deal to long-term investors who want to know where to put their money now. Investing in Bitcoin today and watching it slowly sink to $100 in ten years would be devastating. Bitcoin remains a major gamble. But investors know what’s likely to happen to gold.
In the long-term, gold prices can remain within a relatively small window for years. Then, after a big market shock, gold prices break new records before a decline. It’s a predictable pattern and there’s no indication that Bitcoin is set to disrupt it.
Investors buy gold because they know what it’s going to do. It will beat inflation, protect their money, and grow when bonds return negative real rates.
Real gold bullion such as gold bars and gold coins are readily available online. Gold dealers like Silver Gold Bull Canada have made buying gold simple and seamless. Go online, pick a product, lock in a price, and have it shipped insured and discretely to your home, or kept in global allocated storage.
The analysts agree that Bitcoin is more likely to end up at $100 in ten years than the alternative. Investors looking for long term value would be better off buying gold online.
Ryan Yarbrough is a small business consultant, speaker, and the manager at Davis Financial Services, a small business consulting firm.