Across the independent media, there’s a fierce debate raging between those who promote GOLD vs. others who are advocating BITCOIN. I’ve been a long-time gold advocate and Bitcoin advocate, although I recently warned that Bitcoin was overbought and headed for a massive correction. In less than 24 hours after that warning, Bitcoin began a plunge that took it down nearly 30%. It has since partially recovered to the $2500 range, and the debate rages on.
What’s interesting about this debate is that all of us who are pro-gold and pro-Bitcoin are anti central banking. We all understand the total currency collapse that’s coming for fiat currencies such as the dollar. We are all fully informed of the massive theft of purchasing power taking place every day due to the endless money printing of the central banks, and we all want to promote and pursue strategies for asset protection that minimize risk.
In this analysis, I aim to give you straight up advantages and disadvantages of Bitcoin vs. Gold, then I’ll reveal my conclusion of what I think is the best store of wealth. (Hint: It’s a mix.)
Disclaimer: I currently own approximately 0.35 Bitcoins, and I am mining Bitcoins daily using a solar farm in Arizona. I am not betting against Bitcoin price movements in either direction. I also own some amount of gold, and I am not invested in any gold derivatives or options of any kind.
BITCOIN advantages and disadvantages
Bitcoin is a phenomenal innovation with extraordinary advantages over fiat currency, including its relatively rapid speed of transfer, its mathematically limited coin supply and its distributed, decentralized blockchain which avoids all government regulation. The fact that Bitcoin is completely decentralized means no government can shut it down. There are no central servers to be raided and confiscated at gunpoint, which is usually how governments shut down activities they don’t like.
Bitcoin is easily portable, so it’s a great “escape” currency. You can “carry it” with you without carrying anything that can be easily confiscated such as cash or coin. Your entire Bitcoin savings could be help on an encrypted thumb drive, or even in an online wallet where you remember the password (or tattoo it on your heel, just in case).
On the downside, Bitcoin is highly volatile and subject to outright thievery and con artistry (remember the Mt. Gox theft?) while depending entirely on the existence of the ‘net to maintain its integrity. Even more, Bitcoin now suffers from a “mania” mentality where most of the discussion about Bitcoin for new users is all about “how much money can I make” from buying low and selling high. This is a big red warning flag that Bitcoin is being pumped up by masses who have no business getting involved in crypto-currencies in the first place.
Bitcoin is not a good store of value, as evidenced by the fact that Bitcoin can crash 30% in 24 hours. In previous years, it has also fallen 50% in 24 hours. Because Bitcoin is entirely unregulated and is, in essence, a “perfect” representation of the psychology of greed vs. fear, there are no limits on the speed at which Bitcoin can fall. All price crashes are driven entirely by psychology, and fear is a very powerful emotion. That’s why Bitcoin tends to climb slowly and plunge rapidly.
Here’s the real kicker with Bitcoin, however: It isn’t REAL. Even those who are heavily invested in Bitcoin understand very well that before any gains in Bitcoin really “count” in the real world, Bitcoin has to be sold to someone in exchange for something that’s closer to a real store of wealth. For example, Bitcoin can be sold for fiat currency, and then fiat currency can be traded for land. This is how you convert Bitcoin to a real store of wealth. Or you can spend Bitcoin to buy gold, thereby converting a virtual currency (Bitcoin) to real precious metals which have universal, real world value.
Here’s one big risk of Bitcoin that few people are talking about: The risk of Bitcoin being modified to allow unlimited future Bitcoin mining. This is the equivalent of “quantitative easing” or “money printing” which benefits the Bitcoin mining operations at the expense of everyone else. It’s true: There’s a lot of talk inside the Bitcoin community right now about altering the Bitcoin system to override the 21 million coin limit and allow for unlimited future mining. If this happens, it would essentially turn the entire promise of Bitcoin (limited scarcity if coins) into a total fraud, proving that Bitcoin is just a pump-and-dump scheme to benefit those insiders who profit the most from controlling the system to their benefit.
Finally, Bitcoin is subject to instant wipeouts. The Mt. Gox online wallet decided one day to steal everybody’s Bitcoins and escape to the Bahamas (or somewhere). People lost what would now be worth literally billions of dollars worth of Bitcoins. Even popular online wallets like Coinbase are now engaging in the outright theft of Bitcoins. Coinbase, for example, is currently stealing Bitcoins from all users in Wyoming, and this outright theft of Bitcoins could expand to other states. If you run your own Bitcoin wallet, you can lose everything if your computer is stolen or suffers a fatal crash. This is similar to the way that cash or gold can also be physically lost or stolen.
Because Bitcoin is also a virtual, electronic crypto-currency, it instantly ceases to exist in a grid down solar flare, EMP attack, nuclear war, global natural disaster or other cataclysmic event that takes down the internet. However, in a catastrophic financial collapse involving central banks, I continue to recognize that Bitcoin could skyrocket to $10,000 or more, although getting out of Bitcoin at “the top” of this surge will be impossible to time. So speculating with Bitcoin is an extremely dangerous game of roulette that could cost you dearly.
Summary of Bitcoin:
- Excellent portability
- Excellent anonymity
- Decentralized and government-proof
- Highly volatile, can lose 50% of value literally overnight
- Subject to irreversible theft from dishonest online wallets such as Coinbase
- Completely non-regulated, which is both good and bad
- Now appears to be driven by GREED and a “mania” mindset rather than reasoned users
- Instantly useless in a solar flare, EMP or nuclear war that takes down the ‘net
- Risk of ownership of Bitcoin is HIGH because it’s not “real” until you trade it for something that is real
- Huge risk in Bitcoin being “modified” to create more coins, effectively flooding the current coin scarcity
The thing to remember with Bitcoin is that it’s not REAL until you SELL. Until you sell, it’s just numbers on a distributed ledger. (Related: Follow more news about financial risk aversion strategies at RISK.news.)
GOLD advantages and disadvantages
Gold is instantly recognizable as having value in the real world. It’s a precious, physical substance with a wide variety of industrial and medical uses due to its extraordinary molecular and elemental properties. Because gold mining is so difficult, gold has a strictly limited supply that can only grow at a slow rate, guaranteeing the scarcity of gold currently in circulation.
Unlike Bitcoin, Gold is a universal store of value. Gold can be traded for housing, food, ranch animals, vehicles, firearms and land anywhere in the world, across any culture or government. Gold is, essentially, the “ultimate currency” for human civilization.
The best advantage of gold? Because gold is real, it cannot simply “vanish” due to technical glitches, solar flares, nuclear war, EMP attacks or other large-scale disasters. Gold is impervious to all such events, and even if you melt it with fire, it’s still gold. That’s because gold is an ELEMENT on the Table of Elements, and you can’t destroy elements unless you subject them to hot nuclear fusion or similar processes.
Gold, in other words, will still be around long after Bitcoin has crashed or been abandoned for some other crypto currency. As a physical object in your hands, gold isn’t a speculation rooted in runaway psychology (greed vs. fear). It’s a real substance with real value that’s only slightly impacted by changes in human emotions.
The disadvantages of gold include its ability to be stolen, difficulty in transporting large quantities of gold (it’s heavy), the transactional cost of converting gold into fiat currency (if you ever need to do that), and the possibility of you losing your physical gold in a flood, tornado or other natural disaster. There’s also inherent risk in sending gold to someone else via common carriers such as the USPS. Bitcoin, on the other hand, can be electronically transferred with no real risk of it being intercepted and stolen.
Gold is difficult to carry across borders in large quantities, as governments seem to take a huge interest in people who carry large sums of precious metals. Buying and selling gold is also trackable, depending on how you buy and sell it, meaning that governments might one day track down people who have purchased large amounts of gold (especially on credit cards) and demand confiscation of that gold.
Thus, gold can be instantly lost just like Bitcoin, but it can’t be lost based purely on emotions such as FEAR. Gold has inherent value rooted in much more than psychology, and right now, gold prices are being heavily suppressed by the status quo, which means that gold is currently under-valued, while Bitcoin seems to be increasingly over-valued.
Summary of Gold:
- Good portability, but large quantities are hard to move (if you own so much gold that you can’t carry it, by the way, you are pretty well off in this world)
- An excellent store of value, will continue to exist no matter what the psychology of other markets
- Cannot simply “vanish” — will outlast solar flares, EMP, nuclear war and natural disasters
- Can be stolen or lost
- May be confiscated by governments
- Gold purchases can theoretically be tracked by governments if you buy gold with credit cards or bank transfers
- Has universal, long-term value and utility
- Risk of ownership is relatively LOW, because even if everything goes wrong in the world, your gold is still gold
CONCLUSION: Gold is for storing assets; Bitcoin is for fleeing with your life
Here’s my conclusion in all this: Gold is an excellent store of value, but Bitcoin is the ultimate “get out of Dodge” currency for fleeing with your life.
In fact, I continue to tell people that gold, silver, land and firearms should be your “hard” assets that store wealth. Land has all sorts of advantages, including the fact that it’s very hard to have land stolen from you (though not impossible, when governments go rogue). Gold, silver and firearms are all portable and universal representations of value. You can trade gold, silver and guns for almost anything, anywhere in the world (with various levels of risk associated with each transaction, of course).
Bitcoin is the last ditch crypto-currency for fleeing with your life. I continue to recommend roughly about 5% of your savings be invested in Bitcoin or another crypto-currency for the simple reason that it could save your life in a real pinch. You can flee with Bitcoin in your pocket (on a thumb drive), leave behind everything else, and still have some usable money when you arrive at your destination. Bitcoin, in essence, is “emergency funding.” It’s the escape hatch on your rocket ship… it’s your “pull this handle in an emergency” strategy for last-ditch escape in a world run by tyrannical governments.
Personally, I sold nearly all my Bitcoin for gold a couple weeks back. Now I’m sitting on some gold coins instead of Bitcoin, but I’m still mining Bitcoin with solar power and I plan to maintain a small Bitcoin wallet for emergency use. I’m defending my gold coins with firearms, of course, meaning that anyone who tries to steal my gold will find themselves enjoying a limited run for the “Center for the Perforating Arts.”
That’s my bottom line advice: Bitcoin has a practical use, but don’t bet the farm on it. Don’t play the greed game and think of Bitcoin as a money making opportunity. That’s where people are going to get burned when the Bitcoin market turns sour. If your primary reason for buying Bitcoin is thinking you can buy low and sell high, you are a fool. Sometimes fools get lucky, but usually they get proven as fools.
The bottom line
Remember: Bitcoin isn’t REAL until you SELL, while Gold is real the moment you buy it and possess it. If you’re looking to reduce risk in storing assets of value, gold is a far better choice than Bitcoin. If you’re looking to bet big and try to outsmart everybody else for a gain, then Bitcoin is a speculative betting house that might suit you just fine.
Personally, my best advice for everyone right now is to focus on preserving assets rather than trying to “make money” by timing markets. Nearly everyone who thinks they can buy low and sell high for things like Bitcoin (or corporate stock shares) actually ends up buying high and selling low. That’s because crowds are stupid, and when you find yourself swept up in the madness of a crowd, that should be a really big red flag that says, “Hey, this might not be such a good idea after all.”
Risk aversion strategy summary: (modify as needed for your personal situation)
5% in Bitcoin (or other crypto-currency) as your “emergency escape” fund
15% in gold and silver
75% in land, fine art, firearms, ammo or other hard assets
5% in fiat currency cash (very useful when they declare bank holidays but the currency is still accepted)
0% in the stock market
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