Investing In Bitcoin Compared To Precious Metals, Stocks and Commodities
Many investors and market observers have made a strong comparison between bitcoin and gold. In this context, Bitcoin is regarded as ‘the digital gold’ but the only difference here is that while the physical gold is mined digging the ground, the digital gold is mined with some software, digging to solve some mathematical equation. The mining process of Bitcoin is not manual but electronic.
Bitcoin, gold, and stock have a great deal in common, they are major investment tools. Though bitcoin is relatively new, gold and stock have been in existence for quite a while; many investors would be more comfortable investing in them.
Gold and Stock are more popular among investor but bitcoin has come with a lot of prospects and high return on investment that can appeal to so many investors.
According to a letter to investors by Jeremy Grantham, of GMO LLC, he defined Bitcoin as “more than anything we can find on history book and the very essence of a bubble”
However, until now we have not noticed any burst in the bitcoin bubble, which means, it has come to stay. As more awareness of bitcoin and other cryptocurrency is being created, investors’ interest is stirred.
Studies have shown that about 80 percent of major investors all over the globe, invest in bitcoin and blockchain technology including the government. A lot of factors are considered to cause this shift in the interest of investors.
Prices And Return On Investment
According to a report from the London Bullion Market Association, the price of gold is steady from day to day. In 2017, while the price of gold witnessed only a 12 percent increase and other precious metals like silver, just 5 percent, bitcoin records up to 1,200 percent increase. This surge in bitcoin price stirred up the interest of many investors, with casual traders rushing to invest in cryptocurrency.
Recently the Ministry of Science and ICT in South Korea, launched a blockchain development program, proposing to invest $207m in private and public blockchain programs.
According to a report to Forbes by APMEX Inc CEO, Ken Lewis, 55% of those who buy bitcoin are new customers and transactions in bitcoin are 3 to 6 times higher than other purchases.
Bitcoin generates a higher return on investment than any stock, an overview of 5 years performance of FANG [Facebook, Amazon, Netflix, and Google] stock, shows a good performance. But a 5-year analysis of investment in bitcoin or any blockchain technology program shows a potential for a higher return for investors than other traditional investment.
There is a similarity between bitcoin and gold investment that is different from stock. They are considered as a speculative investment, there is no fixed rate of return, like interest payment.
Gold and stock have been viable investments for so many years, they are considered as safe – haven, investors have more confidence investing in them. Now the attention is shifting to bitcoin, investors show a lot of interest, because they consider it the safest- haven during the time of distress.
Gold and bitcoin seem to be the most viable investment options available to investors since they are considered safer and more profitable than stock. So many investors would trade their gold for bitcoin, while some others would prefer keeping their asset in gold, for fear of the unknown.
Investors who prefer bitcoin to gold do so because the price of gold can be static for a period of time, while the price of bitcoin increases every day.
People’s interest in bitcoin is increasing rapidly, a lot of people prefer to do a transaction in digital currency than fiat money. This high demand pulls the supply of bitcoin which triggers investors’ interest, and profit is maximized as the demand increases.
Investment Trend and Forecast
Just like stock, bitcoin is predictable, investors can monitor and know the movement beforehand, but gold cannot be monitored. No one can predict what the price of gold will be in the near future, market observers have come up with many ways to value bitcoin.
On October 18, 2017, a researcher with the Fundstrat Global Advisor, Thomas Lee, predicted that bitcoin would reach $6000 by the end of 2018, and it actually happened. His forecast was based on the demand, showing that the value of bitcoin or any digital currency increases as the number of users increase.
Investors can actually strategize or determine their extent of exposure to risk investing in bitcoin by monitoring the trend. Being able to forecast and monitor trends in bitcoin is a strong tool that can attract more investors.
Since the first blockchain was mined in January 2009, more than 16.6 million has been mined as at 2017. The remaining part of the 20million bitcoin is yet to be mined and it is not stated how long that will take. Investors see this as a growth opportunity that can prompt them to lunch out with a target in mind.
We cannot say the same thing for gold, nobody can actually determine the quantity of gold remaining to be mined. Though there is also growth opportunity in stock as more companies are springing up and existing ones getting stronger; it is not exactly defined how many stocks of companies will be a viable investment in the future.
Another researcher with Frontline Analyst, Dan Davies stated that an increase in the value of bitcoin is driven by the volume of transactions. He said, “it’s not a security with some intrinsic value, rather it is a currency that in the long term is governed by an exchange rate driven by trade or volume of transactions.”
An investor can have a long-term planning on investment in bitcoin, be able to maximize earnings and increase return on investment.
Those who used gold to buy bitcoin said it doesn’t make sense keeping their money in gold when it can be used to buy bitcoin that will keep on increasing every day.
So many other people do not invest in stock because they see it as less viable and more regulated.
In summary, gold, stock, and bitcoin are all valuable assets and good investment vehicles, but it is up to an investor to decide which is more suitable for their investment plan. These are all options available to be considered.