Gold and Bitcoin are used as synonymous with safe havens and currencies. What is a safe haven? When the environment is highly uncertain, it is a place to store wealth or money. It must be something that everyone can trust, even if the institutions, governments or participants in today’s commercial games are not available. Wealth must remain safe in the face of trouble. What is the risk to someone’s wealth? If it is a physical asset, it will be robbed and stolen. Damage caused by fire, flood or other elements. There is a legal issue with not being able to determine if an asset belongs to your asset. There is an access risk because you may own the asset but may not be able to get it. You may own the asset but may not be able to use the asset due to certain restrictions. Who else still needs to be able to use your wealth – spend money, invest or convert it into a different unit of measure (currency)?
In the case of cash or currency, you can own the asset and be free to use it, but it has no value due to systemic problems. There may be too many currency units, and using them will not buy too much (hyperinflation). There is also a currency depreciation – the currency is arbitrarily devalued due to certain economic or institutional problems. Most of these problems come from too much debt and not enough assets to pay for them. Currency depreciation is like a part of the government or issuer or a slow bankruptcy. In the case of foreclosure, the creditor (or the user of the currency) will receive a small portion of the initial value of the asset (or currency).
A key aspect of Bitcoin and gold is that no one is responsible for creating any of them. The national currency carries interest, which means that the currency issuer is responsible. Since the centralized currency can also “delist” or change its value, depreciation or exchange for other currencies. With Bitcoin, players must reach a consensus. Gold is the money of nature, and since it was discovered, no one is really responsible for how it works. Gold has been used as a history of money in almost every culture and society for thousands of years. Bitcoin does not have this reputation. Bitcoin operations require the Internet, technology and power grid, while gold is only. The value of gold depends on the value of the exchange. Bitcoin’s value is similar to buying stocks or commodities: it depends on the value agreed by the buyer and seller.
Is there any regulatory, institutional or systemic risk in Bitcoin? The answer is yes. What if a group of central banks or governments take over bitcoin issuance? Does this lead to control issues that might prevent bitcoin transactions or damage them? What if the reason is to stop terrorism or illegal activities? There are also technical issues, such as who controls the Internet, the power involved in mining bitcoin, or other issues in the infrastructure (grid, nuclear grid, Internet servers, telecommunications companies, etc.). Regulatory risk can also cover the entire range from limiting who buys bitcoin, how many can trade or issue trillions of units of fiat money and buy and sell bitcoin every day, which can lead to paralysis of unit prices, leading to mistrust and lack of use? Gold does not have these shortcomings. Once mined, it will not be destroyed. It does not depend on technology, infrastructure or any organization to make it effective. Because it is small and portable, it can be used anywhere and is still useful without any other mechanism required. Popular institutions can be replaced multiple times and gold is still valuable.
Gold is a classic haven because it does not require institutions to exist, is difficult to forge, cannot be destroyed by elements, and has no access or restrictions. Physical theft and restrictions can be factors, but at this time the price of gold is better than currency or digital currency.