Here’s how bitcoin compares to gold as a store of value based on 8 key factors, according to JPMorgan
- 13 years after its inception, bitcoin remains a controversial asset class and often compared to gold.
- Bitcoin is not considered a store of value by all investors given its volatility and short history.
- Here’s how bitcoin compares to gold as a store of value based on 8 key factors, according to JPMorgan.
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The underlying value of the bitcoin network is not determined by cash flow or dividends, metrics commonly used to value stocks. Instead, the price of bitcoin is uniquely determined by the supply and demand dynamics induced by its buyers and sellers.
âNothing of intrinsic value underpins the bitcoin network, similar to many fiat currencies around the world since it left the gold standard,â JPMorgan explained in a note Friday.
But the bank sees the value of bitcoin technology in its network, primarily its digital scarcity. There will only be 21 million bitcoins after the last mined in 118 years. This digital scarcity has triggered a surge in its price since the start of the pandemic, as governments around the world have dramatically increased their debt and money supply.
This dynamic has led some investors to seek alternatives to fiat currencies as a store of value, such as bitcoin and gold.
“While many buy cryptocurrencies (continuing in our opinion) because cryptocurrencies appreciate and / or significantly outperform other asset classes, we believe that bitcoin’s merits will suffer fluctuations in value. in the short term, both in terms of digital scarcity as well as a good store of value, âJPMorgan said.
These are the eight characteristics that help define what a store of value is and how bitcoin compares to physical gold in each category, according to JPMorgan.
âBitcoin cannot be destroyed and does not perish. It will survive as long as the network survives, which, since the network is decentralized, makes bitcoin very difficult to destroy. When comparing gold to bitcoin , both are durable, âJPMorgan said.
âBitcoin is particularly easy to store and transport. Large amounts of Bitcoin can be transmitted around the world almost instantly and can be stored on a cell phone. Gold is much more difficult and more expensive to store, transport and ensure, âsaid JPMorgan.
âBitcoin is fungible and interchangeable with all other Bitcoin. Gold is generally fungible and can be easily considered better than diamonds, which can have different qualities and shapes that impact value. Gold comes in different measures of purity with 24 karat gold and 14 karat gold of different values. The advantage goes to Bitcoin, “JPMorgan said.
âBitcoin is divisible to eight decimal places, down to 1 / 100,000,000, which is now worth $ 0.0005. Gold is divisible, but not easily with precision,â JPMorgan said.
âBitcoin has a finite number of tokens, capped at 21 minutes, which will be mined by around 2140. Gold is difficult to mine and there should be a finite amount of it. However, as the price of gold increases. As gold increases, so does supply, “JPMorgan said.
“Bitcoin is easily verifiable with transactions recorded on the blockchain, which is publicly available to anyone. Gold is also verifiable, but can also be counterfeited and its purity can be diluted, making the value more questionable,” JPMorgan said.
7. Free of censorship
âNo entity (including developers or miners) has undue influence over a user’s Bitcoin. As such, Bitcoin is censorship-resistant and because the protocol is decentralized, it is not. not subject to the demand or constraints of big business or governments. Governments do not and have restricted both the ownership of gold and the transfer of gold throughout history, “JPMorgan said.
âBitcoin has a limited history as a store of value, not having been created until 2009. Gold has been used as a store of value for at least 5,000 years and more likely at least 7,000 years because it âThis is when the first known gold mine was active,â JPMorgan said.