Marc Cuniberti: Bitcoin, gold and silver
What is the difference between Bitcoin, gold and silver when it comes to inflation protection?
Gold and silver have obviously been around the longest. In fact, since the earth began, these metals existed. Humankind have used these two metals since we first needed to exchange goods and services, and stories of gold and silver as a medium of exchange date as far back as recorded history.
Bitcoin, and the many cyber coins like it, are a little more than a decade old. The length of time in existence is not even remotely comparable. Despite this fact, many have put tremendous faith and funds into this new phenomenon called cyber coin.
One of the difference between the two metals and cyber coin is that the metals exist in the physical and the digital world, while cyber coin exists only in digital form. I dwell on this oddity from time to time, and ponder that if the power went out all over the world, does cyber coin actually exist?
I know the money spent to buy it would still be there, but would the cybers? An interesting concept, yet probably a moot point, as the odds of a global power outage that never comes back is next to nil.
That said, the thought does provoke a deeper analysis of what digital currency is versus the physical ones like metal coins or paper dollars. After all, we can hold the one type in our hand while only being able to view the other on an electronic screen.
Although the digital currency and physical ones have their similarities, there are other differences as well.
For one, the price swings in the digital cyber coin arena are wildly volatile, and although gold and silver do have their fluctuations, they are not nearly as drastic as cyber coin to say the least.
Bitcoin has gone from a few pennies a coin to over $65,000 in under 12 years. Not what I call exactly stable. And since we are talking about inflation protection, a price stable medium is preferred. This makes gold and silver the obvious candidate when considering stability. Many might argue if bitcoin goes up, it’s a better hedge than metals. But the price of cyber coin goes down drastically as well. Maybe cyber is a better speculation but not better protection based on its price volatility.
Ease of transfer is easier with cyber coin as long as one is connected to a power source and has some sort of computer. Gold and silver stocks are also immediately movable when the markets are open, but not so the physical coins. Coins can also be harder and take more time to sell and the spread between the buy and sell price can be significant.
Taxes are due on both transactions and how much is dependent on a variety of conditions. The jury is arguably still out on what the tax liability will be on cyber transactions.
Gold and silver, having been around so long, are easier to transact in electronic form from any stockbroker firm. Cyber coin exchanges are difficult to use in my experience, and there are few Wall Street versions of bitcoin funds that are available as of yet.
The stunning price increases in cyber coin has indeed attracted a lot of attention. So much so, when comparing price action of Bitcoin to any other asset in recent history, the mania and price increases surrounding bitcoin is the most volatile ever witnessed. Nothing compares, even in the slightest, to the astounding price swings witnessed in Bitcoin and its cyber relatives. There is little doubt this is a mania of historic proportions. Manias can crash horribly.
There has been talk that buyers of cyber coin have taken a little bit of the luster from gold and silver, which is to say some investors are buying cyber coin instead of the metals. That said, it is likely that at least some funds that would have been destined for gold and silver have made it over to cyber coin. But with the difficulty in the coin exchanges, wild price swings, and not having nearly the history that gold and silver have, it remains to be seen whether cyber will replace the metals as an inflation hedge.
In this analysts opinion, the reasons given above tell me gold and silver are still the safer and more dependable inflation hedge. That may change at some point, but for now, it’s the metal of kings for my inflation protection asset.
Marc Cuniberti holds a B.A in Economics with honors from San Diego State University and is the host of Money Matters carried on 66 stations nationwide. California Insurance LIc# 0L34249. Call him at 530-559-1214 or visit http://www.moneymanagementradio.com
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