Everyone’s talking about Bitcoin these days. From tales about the digital currency’s mysterious founder to strike-it-rich stories about early investors, Bitcoin has captured the world’s imagination — as well as its dollars. The investment market for bitcoins is so hot that some investors are concerned about a possible bitcoin bubble. If you’re thinking of investing right now, it could make a lot of sense to forego bitcoins and return to one of the world’s most popular investments — gold.
1. Bitcoins are not legal tender.
No country in the world has legalized bitcoins or currently accepts them as payment for goods or services. Think about that for a minute. If you have gold, you can always — always — sell it for dollars, Euros, rubles or any other currency. If you have bitcoins, it could be turn out to be much harder to convert it into something real.
2. The bitcoin market is incredibly volatile.
In terms of U.S. dollars, the bitcoin went from $15 at the beginning of 2013 to more than $1,200 late in the year. It’s down to around $850 as of today. The upside is clear. If you bought bitcoins in January 2013 and sold them in November, you would have made a lot of money. However, the downside of speculating in this virtual currency is that you could lose big—fast! In addition, it’s completely plausible that another, more popular virtual currency could entice everyone to dump their bitcoins— and investors would lose everything.
3. The bitcoin market may be a bubble.
Throughout history, greed and the desire for quick profits have led to various bubbles that sent prices skyrocketing — and then plummeting. Perhaps you’ve heard of the Dutch tulip bubble in the early 17th century? At the height of the frenzy, a single tulip bulb sold for more than 10 times the annual income of a skilled craftsman. Now, you can pick up a high-quality tulip bulb for less than the price of a candy bar. With the popularity of bitcoins and the rush to acquire them, it’s entirely possible that we could be in the speculative bubble phase of the market.
4. Bitcoin has had setbacks.
A widely traded virtual currency is completely new terrain — and Bitcoin has had a few bumps in the road on the way to its current popularity. Back in 2010, hackers exploited a vulnerability in the programming code and created 184 billion bitcoins in a single transaction. While this has been the only major security flaw found in the code, it’s reasonable to believe that as the popularity of Bitcoin increases, more and more people will attempt to hack the system. Another recent problem involved the rollout of a new version of Bitcoin, which caused mass confusion and resulted in some people’s balances being incorrect.
5. People trust gold.
Ever since the world’s most popular precious metal was first discovered, it’s been a steady medium of exchange. People understand gold. They know where it comes from and how expensive it is to mine (something called its intrinsic value). And people trust gold to be a solid hedge against inflation. Gold has been a good investment for thousands of years. Bitcoins? Too early to tell. The bottom line is that gold is a real, tangible product with a long history as an investment, while the bitcoin is a virtual currency with a very short history that has been marked by extreme volatility. In 50 years, the bitcoin might end up being the world’s currency. On the other hand, it might have disappeared completely, nothing more than an interesting historical footnote. And gold? It’s pretty safe to assume that gold will still be around and still be prized for its intrinsic value and its allure.
If you’d like to learn more about investing in gold, come see the experts at Liberty Coin & Currency.
Liberty Coin & Currency specializes in gold buying and dealing in rare coins. We are a family-owned business that was first established over 16 years ago and is now located in Vancouver and Portland. We also buy gold, silver, diamonds, currency and jewelry. Visit us first for a free evaluation.