When gold surpassed $2,000 per ounce in August of 2020, the financial media and Youtube were awash in calls for gold to reach $5,000 per ounce or possibly $10,000. Early concerns of inflation caused a rush on gold and silver. Coin shops were suddenly flooded with customers even as the pandemic turned shopping centers into ghost towns. Gold has seen a mild correction and hovers around $1,750 at the time of this writing. Since then, we’ve had two additional stimulus packages, populism has clearly taken hold of governance and the Fed overtly supports the zealous printing of money. It’s been over one year of the pandemic, a return to true normalcy is still months away and the stock market is resembling an asset bubble overdue for a steep correction. Looking back at last April, you would think Gold would be at least $3,000 per ounce right now and silver surpassing $40 per ounce. After all, gold is “god’s money”. It is the oldest and most trusted form of a currency and store of value known to modern man. Gold is the safest and most reliable hedge during times of market and political uncertainly. And yet, the price movement of Gold in recent months has remained stagnant. Meanwhile, the price of Bitcoin has increased roughly 500%, skyrocketing from an August price of around $12,000 to the current price of $60,000.
This has many people wondering if Bitcoin is stealing gold’s thunder and could it possibly function as a store of value in the coming decades. Looking at the numbers and considering that Bitcoin is at least hypothetically a hedge against inflation and political uncertainty, it is logical to argue that it is competing with the gold as a safe haven asset. However, it must also be understood that Bitcoin has still yet to be truly tested as a store of value while gold has been rigorously tested throughout millennia. We also do not know how far Bitcoin will compete with gold. The total market cap of Bitcoin is just over $1 trillion dollars compared to a $10 trillion dollar market cap for gold. It is also possible that gold and Bitcoin will coexist in the coming years. What seems to be the most likely scenario is that capital that would normally flow into gold and silver will continue to be diverted into bitcoin and other cryptocurrencies. If you hold gold and silver, this isn’t to imply that you should sell everything right now. If the current asset bubble plays out and we enter a prolonged bear market in addition to precarious inflation in the next few years, there is plenty of room for both bitcoin and gold. It is unlikely that gold will hit $8,000 to $10,000 per ounce if the price of Bitcoin reaches $200,000 or $300,000, but it is conceivable that gold could be $3,000 to $4,000 per ounce five years from now.
If you are investing in Bitcoin, proceed carefully
I am a Bitcoin enthusiast, but I’m also a realist. I do think that one Bitcoin is going to reach at least $500,000 in the next five to seven years. However, I also expect the price to revisit the $20,000 range first in the next bear market. It only makes sense considering that $20,000 was the high of the previous bull market and that price should now act as support. In the long-term, you can make more money investing in Bitcoin, but you will experience much less volatility investing in gold and silver. Many individuals buying Bitcoin today are going to lose almost everything when the current bull market suddenly capitulates and they panic sell. In my opinion, the smart move is to invest in both Bitcoin and gold. Gold is and will always remain the time tested asset of truth. It will always hold its value and it is the ultimate avenue in terms of wealth preservation. While Bitcoin is the future, there will still be a place in the future for gold.