Why is bitcoin called digital gold?

 For years gold has enjoyed a reputation on international financial markets as the safest and most secure investment. From the point of view of investors, in times of economic crises, uncertainty and turbulence, gold is the safest carrier of value. For this reason, gold is referred to as a "haven". However, the coronavirus pandemic and almost all of 2020 have shown that the "yellow metal" has increasingly strong competition in bitcoin, which is referred to as "digital gold" by experts. In this article, we examine the basis for this comparison.

- Bitcoin and gold in terms of investments can have a lot in common.

- Like gold, BTC is a deflationary asset that should gain value over the long term when priced at inflationary assets (such as currencies).

- Some financial models suggest that the bitcoin market will overtake gold's dominance as the main "haven" over the next few decades.

Bitcoin and gold, or the similarities

At first glance, gold and bitcoin are separated by a vast gulf. How can the digital currency of the Internet be compared to a commodity used by mankind for thousands of years? It turns out, however, that there may be more similarities than they may first appear.

- Mining: Bitcoin, like gold, is "mined". Granted, BTC miners do not mine the physical resource, but labor is required to be able to obtain it. Interestingly, bitcoin has an advantage here. Every time gold gets more expensive, miners find more and more ways to mine it efficiently, so the supply increases and the price stabilizes or falls. With bitcoin this is not possible - each miner here only increases the security of the network, thus actually working to the advantage of the BTC holder and not against him.

- Limited quantity: like gold, which has a limited amount available in the world, bitcoin is limited to a maximum pool of 21 million

- Rarity and deflationary nature: the above point causes gold and bitcoin to be treated as "scarce" assets that will become harder to acquire over time. At the same time, their limited supply makes them deflationary, which in the face of inflationary traditional currencies (which can be printed endlessly) means they will only increase in value over time

- Guardian of value: gold has been treated for decades as a haven that allows you to store the value of your assets in hard times. During the Covid-19 pandemic bitcoin also started to receive this nickname, generating high returns

- Medium of exchange: Gold, as well as bitcoin, can be exchanged for goods, merchandise, and services. In this respect bitcoin also has a lot of advantages - it is divisible and there is no problem with its transportation, it can be exchanged globally in a very short time.

The fact that bitcoin is limited in number, is mined by miners and is deflationary and "rare" makes it increasingly referred to as the "digital version of gold". 

Did you know?

Bitcoin is called digital gold because of its growing popularity as a haven. This type of asset class also includes the Swiss franc and the Japanese yen. Investors choose them when there is fear and uncertainty in the markets.

Where gold loses to bitcoin or rates of return

Gold's position as a major haven and guardian of value will certainly not be shaken for many years to come. However, what makes some experts believe that BTC will eventually be able to dethrone gold and become the main choice of investors for difficult times is the rates of return it generates.

As you can see in the chart below, as of December 2019, over the next 12 months gold has guaranteed more than 20% return on investment, which in traditional markets is an extremely satisfactory result. However, when we compare it to the over 180% return that BTC has generated, gold, as well as all other assets (stock indexes, stocks, and ETFs), lag far behind.

This article was written by me personally and with the support of online casinos 7bits casino