Common Sense Financial Podcast
Episode 62 Is Bitcoin the New Gold or a New Safe Haven?
Gold has been a source of wealth for thousands of years and a safe haven in uncertain times, but with cryptocurrencies like Bitcoin coming onto the scene, is that about to change? Before we can answer that question, we need to understand the history of the US dollar and how gold has fared over the past 100 years to get an idea what the future may hold. Find out what makes Bitcoin so special and why it may be the gold of the 21st century.
- A growing number of people believe Bitcoin and other cryptocurrencies could soon replace gold as a safe haven against a depreciating dollar.
- Compared to the other cryptocurrencies, one of the unique features that sets Bitcoin apart is the fact that the total supply is structurally restricted to 21 million coins. This is a hard cap on the total amount of Bitcoins that will ever be in existence and is one of the reasons why so many investors are bullish on the future value of Bitcoin.
- Bitcoin has been often compared to gold. Gold has been used to store value during uncertain times for thousands of years. With mining on the decline and demand going up, it’s safe to assume that prices will rise in the future.
- Whether you lean toward digital currencies or prefer gold, at the core of the debate is a universal distrust of government. In recent years, governments around the world have spent and printed fiat currency at an unprecedented level, the results of which remain to be seen.
- With gold, history has proven its viability, but historical events have impacted its price. After the Federal Reserve Act was implemented in 1913, the government wanted to increase the money supply and declared that the spot price of gold would increase by 69%. In ancient Rome, Caesar diluted and trimmed the gold coins used as currency in order to increase the overall supply of coins.
- In 1971, the government was facing another money supply shortage. With the US dollar still on the gold standard, their printing capabilities were restricted. Their answer was to leave the gold standard and convert to a fiat currency.
- Fiat currency is a currency that’s not backed or pegged to any real world asset, and instead is backed by the printing country’s credit worthiness. Gold has been on a rocky incline since.
- Gold seems to be inversely correlated to world events. When things are uncertain, gold rises as people look for a safe haven for their wealth, and in good times the price declines as people are more willing to put their money elsewhere.
- After 2001, the US experienced a series of drastic changes. 9/11, the tech bubble, and the 2008 financial crash all happened within an eight-year span and since then, the government has been printing money in an unprecedented fashion.
- In recent years, and as a result of tax cuts and deregulation, the markets rose by 56%.
- There have been many comparisons between the United States and the Roman Empire. The US is currently going down the same economic road Rome did before the collapse of the empire.
- There are rising tensions between the US and Russia, as well as China, that are creating conditions eerily similar to the Cold War.
- It’s impossible to know for sure if Bitcoin will replace gold as the new safe haven for wealth. For diversified investors, the best answer may be to own both.
- Bitcoin and the blockchain technology have some advantages compared to gold, but it also comes with disadvantages. Bitcoin may be revolutionary in the near future, but it still relies on systems like electricity and the internet to function, whereas gold doesn’t have those drawbacks.
- At this point, Bitcoin is too volatile to truly replace gold as a storage of wealth.
- One of the most important things to consider before buying gold, Bitcoin, or any other investments is really understanding and knowing your risk tolerance. Discover your exact risk tolerance score at skrobonjafinancialgroup.com/risk-tolerance.
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