The question of whether or not to invest in bitcoin is as controversial as the issue of which online casino offers the best type of gaming entertainment. Cryptocurrency enthusiasts argue that the digital assets are the world’s future currency while skeptics say that it’s a passing fad.
Protecting Assets
Investors are noting that the fiscal position of many of the world’s traditional financial powerhouses is deteriorating. Trade imbalances and trillion dollar debts are causing many countries to scale back on their purchases of U.S. Treasuries. Investors are rightly worried about how they can protect themselves against a potential decline in the value of the dollar. They want to put their investments in a reliable “store of value” — an asset which can be stored and reliably retrieved at a later time with its purchasing power intact.
Some investors seek this protection by buying commodities — in particular, gold. Others have decided to invest in bitcoin and still, others are buying up commodities AND bitcoin.
Is bitcoin a good investment in 2019?
Some Comparisons
Bonds, and real estate, gold, and bitcoin — unlike the stock market — share several features in common. None of these assets generates any income while they are perceived to exist in limited supply. Investors purchase these assets mainly because they worry about depreciating fiat currencies. Economists who favor gold as a store of value say that, over the next five to ten years, gold is more likely to be the superior option.
Some comparisons:
Gold
- Gold is tangible and transportable.
- You can purchase or sell gold anonymously.
- Gold is a desired commodity throughout the world due to its unique properties which include its durability, its rarity, its fungibility, its resistance to corrosion, its divisibility, its beauty, and its malleability.
- Gold is relatively easy to hide and store gold.
- Gold is a highly liquid asset.
- Theft and loss are the risks of investing in gold.
- There’s no risk of gold being hacked.
Bitcoin
- Bitcoin is not tangible.
- There’s no need for any intermediary when buying or selling bitcoin.
- Bitcoin can be sent across the world anonymously, inexpensively and seamlessly.
- Bitcoin transactions are decentralized.
- The bitcoin currency is both fungible and divisible.
- Bitcoin is vulnerable to being stolen by hackers. This is particularly true if the bitcoin is being stored in an exchange.
Potential investors should also keep in mind that gold’s supply is limited, which supports its role as a store of value. The supply of gold increases by about 1.5% each year worldwide. Gold’s unique properties make it a superior store of value as compared to other precious metals including palladium, platinum, and silver. After thousands of years of competition against other commodity currencies, gold has emerged as the clear winner store of value.
Pros and Cons
Analysts say that a futures market for gold exists. That increases the supply of paper gold. However, when futures are settled with physical gold, it limits the extent to which the futures market is able to influence the long-term physical gold price.
On the other hand, while, in theory, bitcoin’s supply increases are also limited, bitcoin can be “forked,” which involves a permanent split of one currency into two in the blockchain. Dissatisfied bitcoin developers have already forked the cryptocurrency a few times which caused bitcoin to split into bitcoin cash and bitcoin gold. In the future, additional forks could take place.
Added to the possibility of future forks for bitcoin itself, multiple new cryptocurrencies have been launched in the last couple of years. Currently, bitcoin is investors’ favorite cryptocurrency but at any time, any of these other cryptocurrencies could replace bitcoin as a favored cryptocurrency for investors.
Bitcoin investors can take assurance from the cash-settled futures market that’s been launched for bitcoin. That means that futures market participants can create a limitless supply of fiat bitcoin. However, bitcoin, unlike gold, has not been tried and tested for thousands of years so it’s hard to know what could happen if something unexpected happens.
Other Currencies
Currently, bitcoin is the most popular form of digital currency but approximately 1,500 other cryptocurrencies have emerged since the creation of bitcoin in 2009. There’s not a lot of oversight or regulations for any of them. That is both the strength and the weakness of cryptocurrencies which are exchanged pseudonymously to allow for complete privacy.
It’s still risky and volatile to invest in bitcoin or in any other of the cryptocurrencies but as digital currency becomes more mainstream, it’s becoming highly attractive to investors.
In short, as values drop and rebound, investors should show caution. Big banks are reluctant to get involved, which signals the need for caution. On the flip side, more and more mainstream businesses are accepting bitcoin payments which many investment firms see as a cause for optimism regarding bitcoin investments.