In the world of investors, Bitcoin is increasingly referred to as the replacement of gold. Gold has a constant value. It is very expensive to mine new gold. As a result, it is becoming increasingly rare, with the result that the value has only increased in recent years. Investing in gold means that your money will only grow in value. However, this rarity is also a feature of Bitcoin.
This blog explains why Bitcoin is becoming a serious alternative for investors as a storehouse of value for gold.
Why invest capital in gold?
First a brief explanation of why investors should invest their capital in gold. If the capital of large institutions is fixed in dollars, it is risky. The dollar is subject to fluctuations in exchange rates, with the result that capital changes value overnight.
The value of the dollar is therefore affected by inflation and other economic developments. A drop in value of 20% in a very short time is not uncommon. Investors want to hedge this risk by raising funds more firmly.
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GOLD IS VALUABLE
Gold is a solid investment. It is a valuable material, which can not be easily extracted. Thus, a large stock of new gold will not be added so quickly. This means that there is a shortage.
This rarity causes demand to rise, keeping the price of gold high. In fact, if demand is high enough, the price of gold will only increase. This happened this year as well. In part because of the global political crown that drives inflation needed to mitigate the effects on the economy, gold has already appreciated by 22 percent this year.
WHY DOES BITCOIN LOOK LIKE GOLD?
The similarity between gold and Bitcoin is that it is also rare. This is because the operation of Bitcoin is based on the role that gold plays in the economy. Bitcoin is mined by so-called miners. These are people who solve math problems with the help of computers. Get paid for it in Bitcoin. Bitcoin design stipulates that a maximum of 21 million Bitcoins can be mined worldwide. This means that rarity is integrated into the design.
One measure that further boosts the rarity is the so-called half Bitcoin. That is, the total number of Bitcoin mines that can be mined is halved every four years. This is achieved by making it increasingly difficult for miners to mine new Bitcoins. As a result, the production of new Bitcoin continues to decline, with the result that inflation in Bitcoin also becomes lower. Realize that more than 18 million Bitcoin have already been mined. Thus, the remaining stock is significantly reduced.
RATIO OF STOCKS TO FLOW
There is an idea to indicate the ratio between the remaining stock and the new production. This is the ratio of stock to flow. At the beginning of 2020, Bitcoin was at 25, with inflation of 3.6%. That was before the Bitcoin half in May 2020.
Gold at that time had a stock to flow ratio of 62 and inflation of about 2%. If the stock to flow ratio is higher and inflation rises, it will be more difficult to mine new Bitcoin and new gold. Then the shortage increases.
During the development of the Bitcoin network, the underlying protocol has proven to be almost indestructible and very stable. Bitcoin can hardly be counterfeited. This has created a digital rarity, which has led to the creation of a unique unadulterated value.
This means that Bitcoin has the same properties as gold. A feature of gold is that it can be used for corruption through the concentration of power. Bitcoin is not sensitive to this due to the decentralized network.
Therefore, Bitcoin can not be used as a means of corruption.
BITCOIN MOST POPULAR THROUGH PANDEMIC
The growing interest in Bitcoin as a store of value can be explained by the economic impact of the coronavirus pandemic. As a result of measures to reduce the economic impact of the pandemic, inflation has risen.
Gold benefited from this year with a 22% appreciation. However, the appreciation of Bitcoin over the same period is 140 percent. Mainly because of this, many investors are interested in shifting some of their gold investments to Bitcoin.
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