The last year has been a strange one for currency alternatives in investment. Often viewed as safe havens to simply holding onto currency, alternatives such as precious metals, Bitcoins, and various other commodities tend to operate with a somewhat inverse relationship to the world’s most influential economies. This is naturally a very broad statement and isn’t true at all times, or in strict detail but the concept is generally accepted, and BTC Geek covered it briefly back in December. As the U.S. dollar or the Euro struggles, investors look for more stable alternatives to basic currency, and many will buy stockpiles of resources with universally set prices, which are not quite as impacted by economic downswings.
For the better part of a decade, this meant that resources like gold and silver were pretty reliable. In its early days, Bitcoin may have caught the tail end of that wave with its initial spike in price in the latter half of 2013. But in the past year, a rebounding U.S. economy seems to have shaken up the picture. And in the process, the similarity between Bitcoin and precious metal, from an investor standpoint, has been cast in an interesting light. Basically, since January 2014, both Bitcoin and gold have faced significant drop-offs in price. While they hit their respective lows at different times, the general trend looks similar.
And frankly, this is a comparison we should all have been making more often. The similarities between Bitcoin and gold begin with the simple concept of each as a highly valued currency alternative. Although, Bitcoin differs in that it operates with a predetermined finite supply, while gold (though ultimately finite) is still being mined. But they also extend to how each resource is acquired. Just as Bitcoin can be bought or acquired online, gold now operates primarily at independent websites, to the point that it almost feels like its own version of digital currency. BullionVault, an online marketplace that deals with massive quantities of metal from around the world, demonstrates how this happens in that it stores gold in vaults without investors ever having to see it. To be clear, you have the option of withdrawing gold in physical form, but those who prefer simplicity can buy, store, and sell just as they might any given stock or, to the point, Bitcoins.
Taking things beyond simple acquisition and storage to the actual purpose of investment, Forbes contributor Michael Lingenheld also made the valid point that both Bitcoin and gold can help private investors to get around various risks and controls associated with ordinary banking. The most severe example was the possibility that a government can actually legally confiscate personal savings kept in a bank, whereas no such risk exists with digital currency or precious metal kept in a vault. While this example probably sounds dramatic, it does symbolize the very real uneasiness with which many view ordinary banks, and it’s this apprehension that can make currency alternatives appealing.
Where the two options differ greatly is in their respective futures. Bitcoin has the significant differentiating factor of being accepted as on-the-spot currency in an increasing number of venues and online stores, which in ways makes it a currency of its own, as opposed to an alternative resource. Whether this is an advantage or disadvantage remains to be seen. But for now, the similarities between the two go beyond the pricing charts. Gold and Bitcoin currently have similar purposes, similar methods, and even some similar trends.
This is a guest post by Max Crawford. Max is a private investor and freelance writer who contributes content relating to financial strategy, savings, and market trends.