Is Bitcoin the New Gold?
If one remembers the early days of the Internet, or better to the beginnings of the mobile Internet, one may compare its performance with that of a recent smartphone. An analogous extrapolation of today’s Bitcoin to its potential performance in a few decades should give a vague idea of the impressive development that still lies ahead. Therefore, the answer to the question “Bitcoin as Currency or Store of Value”, as it is briefly and succinctly touched on here, will come naturally.
Regarding its property as store of value, Bitcoin is often compared to gold. Bitcoin creator Satoshi Nakamoto had that in mind when he copied the Bitcoin algorithm for gold mining. There, he determined that the number of bitcoins mined into the network has to be halved every four years. This simulates the constant decrease in the remaining quantity when a limited resource is exploited. Furthermore, Nakamoto himself has compared gold to a thought experiment: “Imagine there was a base metal as scarce as gold but with the following properties: boring grey in color, not a good conductor of electricity, not particularly strong, but not ductile or easily malleable either not useful for any practical or ornamental purpose and one special, magical property: can be transported over a communications channel. If it somehow acquired any value at all for whatever reason, then anyone wanting to transfer wealth over a long distance could buy some, transmit it, and have the recipient sell it…”
Gold is not suitable as an investment with yield prospects. The only important function of investing in gold is to insure against economic and monetary crises. The comparison between the trend in the price of gold after the US dollar’s gold standard was abolished in 1971 and the development of bitcoin shows striking parallels. First, a strong, exponential rise, which falls into a state of equilibrium, while volatility decreases, because the asset becomes more established.
At the same time, the course of the bitcoin price shows only very weak correlations to both gold and oil as well as to the stock markets. This circumstance makes it a store of value for an attractive investment alternative or for a separate asset class in the sense of a diversification of the risk.