Time in the Market
               Not Timing the Market

BITCOIN Vs. GOLD

Scarcity, Decentralization, Independence

“Uncertainty” seems to be the only “certainty” in the aftermath of some terrible decisions made in the past two years by various leaders who have led their economies to depths from which they may struggle to recover. The imminent threat of a global crisis looms over the economic landscape, which strongly resembles the 1970s, as sightings of a biblical ‘black swan’ event landing on what remains of the Global financial landscape, as we’re advised to prepare for yet another ‘distraction’ as we ‘RESET,’ according to unelected leaders.

Debt is skyrocketing, defaults are looming over already strained geopolitical relationships, and ‘value’ is rapidly eroding as former superpowers’ currencies are set to fall in sunsets to come, signaling the onset of a recession-like depression.

During economic turmoil, everyone naturally looks for safe havens to protect their wealth, as banks worldwide see cash being drained, with some investors turning to traditional safe havens like GOLD to weather the Biblical event about to be ingrained in our History.

But alas, modern mindsets have decided that turning to modern, decentralized alternatives like Bitcoin is much more flexible in terms of being decentralized.

While these assets are often viewed as a hedge against economic uncertainty and have experienced a surge in popularity in recent years, it’s come to make room for the brilliance of Bitcoin as a challenger to GOLD.

Gold only has a ‘history difference’ from Bitcoin, but they have essential differences: Gold is a more reliable defensive hedge, with a long history and lower risks, while Bitcoin is seen as having a higher potential return and could eventually become a better medium of exchange, but acts as a risk-on asset. Investing in BOTH is a good idea, but knowing the number of enemies Bitcoin has, might result ‘high off-ramp’ tax, which some industry experts are threatening. That’s FUD to scare off the retail investor.

Many questions the wisdom of putting faith in such assets, wondering whether they are truly safe in a world on the brink of collapse. In this context, I aim to examine the current economic landscape and determine whether Bitcoin and Gold truly provide a haven for those seeking to protect their wealth, especially in a future where the definition of ‘value’ may be redefined.

The Scarcity of both is in finite supply. Gold can’t be artificially created; according to the World Gold Council, the average annual gold mine production from 2010 to 2022 was approximately 3,200 metric tons. However, the yearly output can vary significantly from year to year due to factors such as fluctuations in gold prices, changes in mining regulations, and geopolitical events.

But Bitcoin, on the other hand, is capped supply of 21 million coins, and is built into its underlying software protocol and can’t be changed. Unlike fiat currencies, which can be created out of thin air, we all know the magicians behind that process.

Gold and Bitcoin are decentralized assets, meaning any central authority or government does not control them. This independence makes them resistant to censorship and manipulation. Gold has been decentralized for centuries and can be bought and sold by anyone, anywhere in the world. Bitcoin is a digital currency that operates on a peer-to-peer network, making it a popular alternative to traditional currencies in unstable economies or oppressive governments. Their decentralization has contributed to their popularity as safe-haven assets during times of economic uncertainty.

When measuring independence from the financial system, Gold and Bitcoin offer advantages over fiat currencies. They can be traded and stored outside the traditional banking system, granting freedom from the policies and regulations governing fiat currencies. This independence becomes especially appealing during economic uncertainty, geopolitical instability, or when confidence in conventional financial institutions wanes. For instance, Gold and Bitcoin rallied during the collapse of some regional banks, highlighting their appeal as safe-haven assets. The decentralization of Gold and Bitcoin makes them unique assets that are resistant to censorship and manipulation, and any central authority or government does not control their value. This has contributed to their popularity as safe-haven assets during economic uncertainty.

In 1912, the renowned financier JPMorgan famously stated, “Gold is money. Everything else is credit.” Due to its steadfast role as both a store of value and a medium of exchange, Gold has long been perceived as a shield against the crumbling of traditional currencies. While Bitcoin may not yet share the same level of stature, it is increasingly being perceived as a severe alternative. The most crucial aspect of the value of both assets is the people’s beliefs.

So let’s look at the main contrasts between ‘Biblical Gold’ and ‘Brilliant Bitcoin’ as distinct assets that tend to behave differently in various market conditions.

Gold is a more reliable hedge against inflation and deflation; History has taught this. The yellow metal of choice for Warlords and Gangsters has a long history as a trusted global store of value and has performed well in extreme economic scenarios.

In contrast, Bitcoin has a shorter, less proven history and has primarily flourished in a favorable environment of ultra-low interest rates and unprecedented technological advancements. Its mixed performance during geopolitical turmoil and market selloffs highlights that it may only sometimes meet expectations as a safe-haven asset. Plus, only a few in governmental positions understand its potential or value. However, its purpose of making under-the-radar payments has been well documented.

The ‘Bitcoin Maximalists’ know Bitcoin has the potential to become a better medium of exchange than Gold. Its easy divisibility, transportability, and blockchain traceability make it an attractive payment option for cross-border transactions. Unlike Gold, Bitcoin can’t be confiscated and isn’t impacted by storage costs or transport challenges. Its fungibility, verifiability, and government independence may also appeal to a new generation of investors who view digital currencies as the future.

Gold is a defensive asset that typically outperforms Bitcoin during market selloffs. It benefits from inflows as a safe-haven asset and non-speculative demand from jewelry buyers and central banks. In contrast, Bitcoin behaves more like a speculative tech stock and often suffers from investors exiting their bets during difficult times. Only when Bitcoin finds more real-world uses will it be likely to perform well when markets are tanking. In short, Bitcoin cannot be considered a “risk-off” asset.

Bitcoin’s potential to benefit from excessive monetary policies is due to its duration, which is much higher than Gold’s. Its sensitivity to interest rates is still evolving since it has yet to be fully realized as a practical means of payment. The cryptocurrency ecosystem depends on innovation and fresh invested money, which makes it more exposed to financial conditions and benefits greatly from cheap money.

While Bitcoin is unlikely to perform well if the Federal Reserve has to cut interest rates to avert an economic catastrophe, this potential rocket to unprecedented highs if central banks go wild with their bond-buying activity and other measures, colloquially referred to as “printing money.” However, the opposite would be true if liquidity conditions stay tighter for longer.

Gold is generally considered to have lower risks than Bitcoin due to its historical stability and relative lack of volatility. While Gold’s value can still fluctuate, it is much less prone to big declines compared to Bitcoin, which has experienced significant price swings and lost over 80% of its value on multiple occasions. Gold has numerous non-speculative uses, making it less likely that its value would plummet to zero and stay there.

On the other hand, Bitcoin has a much higher potential for return. As demand for a more secure and technologically advanced system grows, Bitcoin has the potential to see significant returns. Some estimates, like Cathie Wood’s $1 million price target, are particularly enticing. Even if Bitcoin fails to reach such lofty heights, it is still considered a more dynamic asset than Gold and is more likely to outperform in specific market environments.

When deciding between Gold and bitcoin, it ultimately depends on an individual’s investment objectives and risk tolerance. If you are looking for a reliable hedge that is likely to perform during times of market turmoil, then Gold may be the better option. Gold is also a good choice if you anticipate a period of high inflation, interest rates, and tighter financial conditions. On the other hand, if you are seeking to improve your portfolio’s risk-adjusted returns, Gold may be the better choice due to Bitcoin’s high volatility.

That said, as a new and innovative digital technology, Bitcoin can serve as a complementary asset to traditional investments like Gold. Bitcoin has the potential to outperform Gold in the short term, particularly in scenarios where the economy experiences a soft landing. Over the long term, its potential to act as an alternative to fiat currencies and its unique properties make it an asset worthy of consideration.

The good news is that even a small investment in Bitcoin, purchased at the right price, can significantly impact your portfolio. While it is not a zero-sum game, owning Gold and Bitcoin can provide diversification benefits, with a more significant allocation to Gold and a smaller allocation to Bitcoin being prudent. Ultimately, investing in Gold, Bitcoin, or both will depend on your investment goals and risk tolerance.

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