At PCEX Member, we also get similar queries and thought of responding to them with this cryptocurrency insightful post.
Let’s compare the two before we issue the verdict. The great philosopher Aristotle has proposed three main criteria for money (commodity theory of money).
1. A medium of exchange
2. A unit of account
3. A store of value
From time immemorial, we have seen how the possession of gold has been a symbol of affluence and prosperity. Perhaps, the historic prosperity of India is reflected well in the Hindi saying “सोने की चिड़िया” (English=bird of gold). Its high liquidity and universal acceptance across all markets have made it a popular asset for investment.
Does gold or bitcoin meet them all? Let’s scrutinize both on all three criteria.
As a medium for exchange
Gold is not money, but it’s more than that. Hope you won’t deny it. It stands true to the test of all these criteria. Though we do not use it as money to buy pizza or anything else nowadays, its local and global acceptance is unquestionable. In rural economies, affluent people lend money or other commodities in exchange for gold. Banks easily lend gold loans. If you go down memory lane, it’s easy to see its global example. Between July 4 and 18, 1991, the RBI pledged 46.91 tonnes of gold with the Bank of England and the Bank of Japan to raise $400 million. Thus, gold serves the criterion #1.
What about bitcoin? Bitcoin is also no exception. In fact, in some instances, it’s better than gold. You may not pay gold for your pizza but pay bitcoin. One common use for Bitcoin is making purchases online. Wondering what shops or retailers accept bitcoin as payment? Use a search engine like Spendabit. There are millions of products that you can purchase using bitcoins. BitcoinWide.com is a global, open, and free platform to search businesses, organizations, or individuals who accept bitcoin or other cryptocurrencies.
As a unit of account
The commodity theory of money states that money is something that is easy to measure and divide to facilitate calculations. Gold and bitcoin both seem to fairly comply with the criterion. Buy and sell gold or bitcoin in any multiple or fraction as per your investment goal or requirements. The current price of 1 bitcoin is $58,586.38. You don't have to buy a whole Bitcoin to own Bitcoin, you can buy a fraction of a Bitcoin. You can own as little as 0.00000001 BTC.
The current price of 10g of 24k gold is 46,890 (Delhi). Buying physical gold is not the only option to invest in gold. Other options include
Gold ETFs (Exchanged Traded Funds)
Gold Mutual funds
Sovereign Gold Bonds
Digital Gold
As a store of value
For years, our forefathers and parents have been investing in gold because of its value that grows over time. Apart from fulfilling their fashion and lifestyle interests or needs, there are two key reasons. First, as a hedging tool against inflation as the value of fiat currencies depreciate against the rising prices of general commodities. And, second, as a reservoir that they can rely upon in difficult times. The high liquidity of gold makes it an ideal asset.
Though volatility remained a concern, bitcoin is rising up to this expectation gradually. Ever since its inception, bitcoin has witnessed and overcame two major economic recessions successfully. First, the global economic crisis of 2008-2009 was caused by many reasons along with the cheap credit and lax lending standards that fueled a housing bubble. And, second, the Covid-19 triggered 2020-2021crisis.
It has only grown stronger with time. When the entire market was suffocating with lockdown and economic restrictions, bitcoin price was making new records. Observe the graph above.
Hopefully, you have got the answer. Comment your thoughts.
