Marc Cuniberti: Bitcoin, gold and silver
What is the difference between Bitcoin, Gold, and Silver when it comes to inflation protection?
Obviously, gold and silver have been around the longest. In fact, these metals have existed since the beginning of the earth. Humanity has used these two metals since we first had to exchange goods and services, and stories of gold and silver as a medium of exchange go back into recorded history.
Bitcoin and the many similar cyber coins are just over a decade old. The length of existence is not even remotely comparable. Despite this fact, many have put tremendous trust and money into this new phenomenon called Cybercoin.
One of the differences between the two metals and the cyber coin is that the metals exist in the physical and digital worlds while the cyber coin only exists in digital form. I dwell on this oddity from time to time, wondering if cyber coins actually exist when the power goes out around the world?
I know the money that was spent on the purchase would still be there, but would the cybers? An interesting concept, but likely a moot point, as the likelihood of a global power outage that will never recur is zero.
However, the thought provokes a deeper analysis of what digital currencies are compared to physical currencies like metal coins or paper dollars. After all, we can hold one guy and just look at the other on an electronic screen.
While digital currency and physical currency have similarities, there are other differences as well.
For one, the price fluctuations in the digital cyber coin space are very volatile, and while gold and silver have their fluctuations, they are not nearly as drastic as cyber coins to say the least.
Bitcoin has grown from pennies per coin to over $ 65,000 in less than 12 years. Not what I call stable right now. And since it is about inflation protection, a medium that is stable in price is preferred. This makes gold and silver the obvious candidates when it comes to stability. Many might argue that if Bitcoin goes up, it is a better hedge than metals. But the price of cyber coins is also falling drastically. Perhaps cyber is better speculation, but not better protection because of its price volatility.
The simple transfer is easier with cyber-coins, as long as you are connected to a power source and have some kind of computer. Gold and silver stocks can also be moved immediately when the markets are open, but not the physical coins. Coins can also be more difficult and time consuming to sell, and the spread between the buy and sell price can be significant.
Taxes are incurred on both transactions and the amount depends on various conditions. The jury is probably not yet sure how high the tax liability for cyber transactions will be.
Gold and silver, which have been around for so long, are easier to trade in electronic form by any stockbroker. Cyber ââcoin exchanges have been difficult to use in my experience, and there are few Wall Street versions of Bitcoin funds still available.
The staggering price increases in cyber coins have indeed attracted a lot of attention. As much as if you compare the price history of Bitcoin to any other asset in recent history, the mania and price hike surrounding Bitcoin are the most volatile ever seen. Nothing compares to the amazing price volatility seen in Bitcoin and its cyber relatives. There is no doubt that this is a mania of historic proportions. Manias can crash terribly.
There has been talk of cyber coin buyers taking some of the shine off gold and silver, which means some investors are buying cyber coins instead of metals. However, it is likely that at least some funds that would have been earmarked for gold and silver made it to cyber-coin. But given the troubles with the coin exchanges, wild price swings, and the fact that gold and silver nowhere near the past, it remains to be seen whether cyber will replace the metals as inflation protection.
Following this analyst point of view, the above reasons tell me that gold and silver are still the safer and more reliable inflation protection. That may change at some point, but right now it’s the metal of kings for my inflation protection.
Marc Cuniberti holds a BA in Economics with Honors from San Diego State University and is hosting Money Matters, which is run in 66 locations nationwide. California Insurance LIc # 0L34249. Call him at 530-559-1214 or visit http://www.moneymanagementradio.com