We are in November 2020, and the craze of Bitcoin still continues. In fact, Bitcoin is showing signs of a second successful rally. Experts are predicting that it might even go further than the previous one.
Having seen the past week’s Bitcoin performance, the players who were watching from the sidelines are now kicking themselves for not entering the market sooner. If they had Invested in Bitcoin, they would have been millionaires by now.
But is the current value of the Bitcoin true value?
It seems that more investors and traders are jumping into the market for only one reason. They think that Bitcoin is an effective hedge to fight against inflation. How much truth is in this content?
Fiat currencies are indeed prone to inflation due to the overprinting of the money. And we already have assets that act as a hedge against inflation. For instance, Gold has always been investors’ first choice of a hedge. If we are considering Bitcoin as a hedge against inflation, does it mean Bitcoin is equivalent to Gold?
No! Bitcoin still has light years to cover before it can be compared to Gold.
Why Bitcoin Faces Challenges To Replace Gold As a Financial Hedge?
Despite what Digital investors say, Bitcoin is still far from becoming a hedge against inflation alongside Gold.
Bitcoin Is Not An Asset; It Is More Like Currency
We all know the fiat currencies are legal tender that is not backed with any physical commodity. Since the 1970s, when the US abandoned the Gold standard, it has become a standard for the other countries as well.
With that being said, it is clear that the Bitcoin definition comes close to the fiat currency. That means there is no way Bitcoin is an Asset. Bitcoin may not be legal tender, but it lacks the backing of any physical commodity.
Hence, you cannot just compare Gold (a universal asset) to a close-to-be currency. Some countries are in the process of creating a government-backed Cryptocurrency to take Cryptocurrency closer to the fiat currency status.
Lack Of Accessible Liquid Market
An asset is the only physical commodity that can be liquidated at any given moment. And when it comes down to asset liquidity, Gold is second to none. You can easily convert Gold into cash at any spot. And the price of Gold is not Bound by the nation’s boundaries.
Can you say the same thing for Bitcoin?
Yes, they are being regulated in the market and are accepted by the retail shop; however, mainstream acceptance will take some time.
The reason why Gold is the most liquid asset is because of its market size. It has been reported that $8 trillion worth of Gold has been mined to date.
Lack Of Security
Security is one of the major concerns of the bitcoin industry. In the past couple of years, the Cryptocurrency industry has gone through several fraudulent activities resulting in billions of worth of Cryptocurrencies stolen. Hence, while security issues are not being fully rectified, Bitcoin’s status being hedged against inflation is compromised.
Bitcoin Value Is Due To Hype
During the pandemic, the value of Bitcoin has seen a gain of 500%. This has made traders and investors worldwide rushing to invest in the Crypto trade market. Could this be just a hype created by the market?
Well, most of the veterans in the hedge industry think so. According to Ray Dalio, Bridgewater Associate thinks that people are making decisions by seeing others. They are not thinking about the future possibilities of the market.
Bitcoins Have No History As Store Value
If we compare the age of Gold and Bitcoin, there is hardly any comparison. Bitcoin has been in the market for only a decade, whereas Gold has been in the market for thousands of years. Over time, Gould has proven itself as one of the best hedges against market crisis and inflation. However, there is no such historical data on Bitcoin and other cryptocurrencies.
It is very important that you understand Gold and Bitcoin’s difference before you start comparing Bitcoin to be an effective hedge alongside Gold. We hope you understood the basic difference between Gold and Bitcoin in terms of both being a hedge. For more, you can visit official site.