Crypto Investing
5 Oct 2020

Bitcoin vs Gold: Which One is Good for India?

CoinSwitch Kuber

Indians and Gold are inseparable !!

Our country – India, has a rich history with a strong connection to Gold, which dates back centuries. With first recorded use as a currency during the Gupta dynasty around 250 AD, Gold in India is still seen as a symbol of wealth and affluence. 

In modern times, the state of gold and the purpose of buying gold has also evolved. Available in ETFs and bond options, gold has steadily risen as an investment option, and many use it for hedging against market volatility. 

With thousands of years of history behind it, the more we talk about gold, the less it feels. 

Nevertheless, I’d like to talk about the new kid in the block – Bitcoin. It is considered digital gold and has the potential of being the world’s new currency. Bitcoin was launched in 2009 and in a short span of its existence, it has shown true potential. 

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Bitcoin: Why is it Called Digital Gold?

Whenever there is a new asset, we always like to compare it with an existing asset, and for that matter, Bitcoin has a huge similarity to Gold. This leads to what is bitcoin vs gold store of value.

Gold was earlier used as a medium of exchange and always had value, which gives it the property of money. According to the Greek philosopher, Aristotle, for an asset to become a functional currency, it should satisfy the following criteria:

  • Durable
  • Portable
  • Divisible
  • Fungible
  • Store of value

When it comes to Bitcoin, it has all the criteria to be called money, just like Gold.

But, many would argue, how can it have an intrinsic value when its price is not derived from any asset, nor it has any fundamentals. What is the surety of its value?

The answer is simple:

For any asset to be established as a medium of exchange within a network, the network must trust the asset regardless of who supports it. 

This is where Bitcoin has an edge and helps to gain its value.

The Bitcoin’s blockchain is designed to be trustless, meaning nobody has to trust anybody for the system to function smoothly. The result, complete authenticity and no double-spending. A far more efficient system than the traditional ones. 

Millions of traders, miners, and other participants in Bitcoin’s network decide the price of Bitcoin only on a single factor, i.e., demand and supply.

Bitcoin vs Gold: Which is a Better Investment Option in India?

Given the price movement of both the asset class, Bitcoin will always find favour. But there are other reasons too, which makes Bitcoin investment superior to Gold. 

  • Bitcoin’s Scarce Compared To Gold

Bitcoin’s supply is capped at 21 million units, making it more scarce than gold, which is not a rare metal class on earth and still mined by putting in more human effort plus time.

The scarcity is Bitcoin’s biggest element, which helps to get its value and also fends off the inflation factor. Know more about What affects Bitcoin price.

  • Return On Investment Compared To Gold

The last ten years CAGR for Gold is 9.4%, and in absolute terms, it is nearly 145%. The inflation-adjusted returns would be much lower.

On the other hand:

Bitcoin in the same period has given a return of a whopping 8.9 million per cent. And since 2009, it has doubled many times in price. Convert BTC to INR at the best rate here.

Even words fail to define such kind of return but, the technical and fundamental indicators of Bitcoin make it a pure growth asset even better than Gold.

  • Bitcoin is Hard To Fake & Indestructible

Bitcoin exists only on its blockchain, which helps to give it the property of being counterfeit resistant. It cannot be duplicated or forged. 

All the operational rules of the Bitcoin blockchain are coded across the network, which gives miners the ability not to confirm the transaction that is already spent if it is found to be violating the rules consensus. And, the same consensus restricts miners to mine fake Bitcoin.

Also, the democratic nature of the Bitcoin blockchain makes it easy to verify the trustworthiness of the Bitcoin. In contrast, Gold is too hard to verify as gold assaying is costly and time taking affair.

  • Cost Edge Of Bitcoin Over Gold 

In India, Gold is a bit more expensive to acquire than in other countries, and there are storage-related costs. As Gold in India is imported, it attracts a 12.5% customs duty, added to the final amount. Over that, 3% GST is levied on the sale amount. 

If not invested in gold bonds, the sale of old gold jewellery attracts 3% GST under the reverse charge mechanism. And, jewellers also deduct a certain percentage of value on the sale of old gold jewellery. 

Whereas, on the purchase and sale of Bitcoin, no GST and other taxes are levied on the transaction value. Also, Bitcoins are straightforward to store and portable. 

  • Bitcoin’s Inflation Lower Than Developed Nations, as well as India

After the recent reward halving of Bitcoin on May 11th, 2020, the inflation rate of Bitcoin has dropped to 1.8%, lower than the inflation rate of most of the developed nations and India too. 

According to an RBI report:

India’s inflation rate averaged 5.98 per cent from 2012 until 2019. And, with RBI’s aim to keep the inflation rate at 4% in the long term, it will still be higher than Bitcoin’s inflation rate. 

With Bitcoin’s designed reward halving mechanism triggers every four years, the inflation rate will continue to decrease.

If Bitcoin’s price continues to move up, it will lead to increased purchasing power, therefore making it a deflationary asset class. And, over decades, Bitcoin will turn out to be the biggest wealth transfer system the world has ever seen. A completely different and new monetary system than the current ones.

  • Bitcoin Rewards Those Who Understands Its Dynamics Of Demand & Supply

Winklevoss twins, the accidental Bitcoin Billionaires Cameron and Tyler Winklevoss- former American rowers competed in the Beijing Olympics and are currently internet entrepreneurs.

They both have an estimated net worth of $2 billion, with a major part of wealth coming from investing in bitcoins. What’s even more fascinating is that they invested in it when it was not even considered as an asset, and only a handful of people heard and believed it. 

In 2011, using the part of their settlement money received from Facebook, they bought 1% of bitcoins in circulation for $11 million. And, by late 2017, when the market exploded north, the value of their investment swelled to $2 billion. 

When they invested in Bitcoin, they thought it could be “either complete bullshit or the next big thing.” The rest of the story, you know. 

Winklevoss twins still hold their Bitcoins and have no plans to sell it. 

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Why Should Indians Invest In Bitcoin?

People investing Gold in India always find it difficult to sell when the need arises due to the sentimental ethos attached to the asset class. Therefore, it fails as an investment class asset. 

But, for Bitcoin, there are no such mental restrictions and can be liquidated easily and quickly. If you check the past performance of both the asset classes, Bitcoin is far ahead. Buy Bitcoin at the best rate. 

Also, in India, Gold is primarily imported, and as the payment has to be settled in USD, it puts pressure on the USD-INR exchange rate, which results in appreciation of gold price in rupee terms. The depreciating rupee results in lower purchasing power for holders of INR, but this can be prevented by holding Bitcoin.

Also read our article on forex vs bitcoin to know about the better option.

Do I still need to tell you more reasons?

FAQs on Bitcoin vs Gold

1. Is Bitcoin’s Scarce Compared To Gold?

Yes, Bitcoin is scarce when compared to gold because it has a fixed supply of 21 million coins.

2. What is Return On Investment Compared To Gold?

The last ten years CAGR for Gold is 9.4%, and in absolute terms, it is nearly 145%. The inflation-adjusted returns would be much lower. 

On the other hand, Bitcoin in the same period has given a return of a whopping 8.9 million per cent, and since 2009, it has doubled many times in price.

3. What is the Cost Edge Of Bitcoin Over Gold?

Gold in India is imported and attracts a 12.5% customs duty, added to the final amount. Over that, 3% GST is levied on the sale amount. If not invested in gold bonds, the sale of old gold jewellery attracts 3% GST under the reverse charge mechanism. 

Whereas, on the purchase and sale of Bitcoin, no GST and other taxes are levied on the transaction value. 

4. Is Bitcoin more valuable than gold?

The market cap of Bitcoin at the moment is for sure lower than gold but at the same time looking at the pace at which both of these mediums are increasing in value. Bitcoin may eventually exceed to become more valuable than gold

5. Is Bitcoin’s Inflation Lower Than Developed Nations, as well as India?

After the recent reward halving of Bitcoin, the inflation rate of Bitcoin has dropped to 1.8%, lower than the inflation rate of most of the developed nations and India as well.

Disclaimer : Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. The information provided in this post is not to be considered as investment/financial advice from CoinSwitch. Any action taken upon the information shall be at user's own risk.

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CoinSwitch Kuber

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