Bitcoin, often regarded as the first cryptocurrency is also referred to as digital gold but why? For starters, based on the Bitcoin protocol or the programming language used, there can only be 21 million units of Bitcoin. Presently, there are 18.5 million Bitcoins circulating which, like gold, makes Bitcoin a rare, finite resource. The only way that new Bitcoins can be created is through the process of mining. But instead of drilling into the earth as is done with gold, Bitcoin miners must solve complex math problems to earn new coins. It is also important to note that mathematically speaking, there can never be more than 21 million units of Bitcoin produced and because of that scarcity, Bitcoin has continued to appreciate over time.
Bitcoin is known for its volatility, dropping double digits in one day but because it is scarce and demand has grown over time, it continues to retain its value. When an asset retains its value over time and is worth greater than or equal to the original amount it is known as a “store of value.” This is another similarity between gold and Bitcoin.
Historically, when there is turmoil in the market, savvy investors flocked to gold as a hedge given gold’s store of value. However, in December of 2020, institutional investors are also known as “whales” such as Jeffries the $51 billion investment firm stated they would be “drawing down their gold position from 50% of its long-only global portfolio to 45% and investing that in Bitcoin”.
Is Bitcoin the new digital gold? You decide and tell us your thoughts by commenting below.