Why is Bitcoin a better "gold"?

Author: Bill Qian

This article is the sister piece of "How to Protect Your Wealth in Turbulent Times," and we will discuss the following questions step by step. First, what exactly is wealth preservation; second, why has gold become the winner in modern times; third, why will Bitcoin be a better "gold" in the 21st century and beyond.

For the past 5,000 years, the competition for the "best store of value" has existed, but gold, with its scarcity and the value consensus formed over millennia, has gradually become the king of wealth storage. At the same time, Bitcoin is slowly dissolving and shaking the market position of gold, and in this process, it has brought our generation an epic opportunity for wealth creation and wealth transfer.

The History of Money

To compare gold and Bitcoin, let's first discuss the largest category of this type: money. Money has three core functions: medium of exchange, unit of account, and store of value. From shells and copper coins to modern fiat currencies (like the US dollar and euro), the medium of exchange and unit of account have constantly evolved. Gold, silver, land, and blue-chip stocks have long been mainstream choices for storing value. In the history of currency, the US dollar during the Bretton Woods System was one of the few currencies that could simultaneously serve as a medium of exchange, unit of account, and store of value, but this was merely an exception and not common; moreover, the dollar's role as a three-in-one currency gradually collapsed after Nixon's televised speech in 1971. Some might ask: then why do many people in emerging markets prefer to use the dollar and save in dollars, even when data shows that the dollar is continually depreciating? I think the answer is: because they have no better choice; their local currencies are worse. This topic leads us to stablecoins, which we will discuss next time.

How did gold become today’s "gold"?

A good store of value for wealth must meet five characteristics: scarcity, durability, portability, divisibility, and social consensus. Silver, land, and diamonds are all difficult to surpass gold on these five metrics. Thus, after spending tens of thousands of years, gold has finally won human consensus and mindset, becoming almost the only asset for storing wealth.

What are the limitations of gold?

Storing gold requires expensive vaults and insurance, and sometimes even transportation costs, with higher expenses as the quantity increases. During World War II, the gold in the vaults of the Paris bank was directly plundered by the German army. The biggest lesson I learned from this is: the safe in the bank, is not safe at all.

In extreme times, the cost of cashing in gold is very high. Similar situations occurred during World War II; whether you were in Shanghai, Paris, or Amsterdam, gold transactions often faced high discounts, usually 30-50% lower than the spot price, and the discounts were even greater in high-risk environments. Worse still, trading gold in conflict areas often comes with serious personal risks—once others know you hold gold bars, robbery and kidnapping can happen at any time.

The government will also further undermine the reliability of holding gold through methods such as confiscation and price controls. For example, in 1933, the United States required citizens to surrender most of their gold at a fixed price below the market, or face severe penalties. Note that the U.S. government required all citizens to surrender their gold at a fixed price of $20.67 per troy ounce. Subsequently, in 1934, through the Gold Reserve Act, the government revalued the official price of gold to $35 per troy ounce. This meant that the gold held by all citizens was 'devalued' by about 41% in just one year. At that time, the U.S. confiscated over 2,600 tons of gold, which directly changed monetary policy and laid the groundwork for the complete end of the gold standard in 1971. All of this happened in the lighthouse of the world, the United States of the 20th century, which possibly respected private property rights the most.

In addition, the limitations of gold being not "digital enough" are very obvious in today's digital economy. For example, you cannot send a kilogram of gold to your friend or another address through any electronic wallet.

In 2009, Bitcoin emerged! What exactly is it?

Bitcoin, created in 2009 by the pseudonymous (Satoshi Nakamoto), is the first decentralized digital currency. It operates on a global, public, open computer network (commonly known as blockchain, a term I find quite difficult to understand) — a shared digital ledger that anyone can participate in and verify. New bitcoins are generated through "mining": computers need to solve complex mathematical problems, package transactions into new "blocks," and add them to the blockchain, with "miners" receiving newly generated bitcoins as a reward. This process ensures the security and smooth operation of the entire system.

What are the characteristics of Bitcoin?

Scarcity: By limiting the total supply to 21 million coins, Bitcoin avoids the 1.5%–2% inflation caused by mining that gold experiences every year.

Durability: As a digital asset, it is perpetually durable and will not experience physical wear.

Portability: Today, if you wanted to carry gold worth one million dollars across a war zone, it would be nearly impossible. Because at today's prices, one million dollars worth of gold weighs 12.4 kilograms, and you cannot take it on a plane. Driving with it would be even more dangerous. However, Bitcoin does not have this problem.

Divisibility: Bitcoin's divisibility is extremely high, with the smallest unit being one hundred millionth of a coin. As it stands, the divisions are already small enough.

Social Consensus: This has been the most debated point over the past 16 years and is the motivation for various other coins to challenge Bitcoin. Regardless of what Bitcoin and the Bitcoin community have done right over the past 16 years, we have to accept a fact today: it has formed a preliminary social consensus. By 2024, the most powerful people in the world, Trump and Putin, have recognized Bitcoin, although for different reasons. Trump sees it as innovation, a tool for debt relief, and a free and open capital market where the Trump family can frolic as they please; Putin recognizes Bitcoin because Russians have discovered that with Bitcoin and the blockchain network, NATO's sanctions against Russia over the years are merely a paper threat. Without the Swift network, Russians still have the blockchain network. Additionally, Larry Fink, the founder of BlackRock, the world's largest asset management company, has publicly supported Bitcoin since 2023 and will launch a Bitcoin ETF in 2024, calling it "digital gold." Larry manages $12.5 trillion, which is equivalent to 11% of the global GDP in 2024. Then there's Musk, the richest businessman in the world; his endorsements are numerous, so I won't elaborate.

Let's take another look at the market performance of Bitcoin

Since 2010, Bitcoin's average annualized return rate has reached 167%, which is 14 times that of the S&P 500 Index and 24 times that of gold. Today, its market value of $2.3 trillion has surpassed that of global silver (2.1 trillion) and the largest fuel provider in human civilization, Saudi Aramco (1.8 trillion). As a "one-person enterprise," Bitcoin can be regarded as the most leveraged company in history. When it comes to leveraging an individual's talents, it is generally believed that there are four types: labour, capital, code, and media. However, the driving force behind leveraging these four elements should be the ability to tell stories, after all, this world is ultimately driven and shaped by storytellers, from religious leaders to Marx, and then to Satoshi Nakamoto. Satoshi Nakamoto is a great storyteller.

Future Prospects of Bitcoin

After 16 years of development, Bitcoin accounts for only 0.22% of the global wealth of 90 trillion dollars, still just a tiny asset. Currently, there are about 100 million Bitcoin holders globally, accounting for only 2.5% of the 5.6 billion internet users. This means that Bitcoin's adoption rate is still in the early stages, comparable to the "innovator stage" of a broader market. This situation is similar to the internet boom of 2000-2001—when there were about 400 million users, which is close to today’s approximately 450 million cryptocurrency users, marking an initial growth period.

If in the future, the number of Bitcoin holders increases from 100 million to 5.6 billion (equivalent to today’s number of internet users), and it receives widespread adoption by global institutions and sovereign governments, what would the price of Bitcoin be? This is also why many people attempt to predict that Bitcoin will quickly reach 1 million dollars in the future, as 1 million dollars would essentially bring Bitcoin's market value in line with today’s gold market value.

So, what can you do? Start building your own Bitcoin holdings.

First, establish your investment time horizon. Historical data shows that most investors perform poorly when timing the market. Unless equipped with exceptional tools, discipline, and the ability to capture high-frequency signals, long-term strategies—such as passive investing, dollar-cost averaging, and disciplined rebalancing—are often more effective than trying to predict market fluctuations. A time-weighted approach, such as consistently investing in Bitcoin over the next 12-36 months, is a more prudent practice. Friends often ask me recently, as beginners, wanting to dive in all at once. I have always believed that everyone should strive to be a rational contrarian investor, maintaining skepticism and caution when everyone else is exuberant. This is also why I have consistently recommended dollar-cost averaging; it acknowledges one's own insignificance as an individual among the masses when it comes to predicting the market, and recognizing that insignificance has already overcome the majority.

Second, determine your reasonable allocation ratio. Allocating at least 5% of your household net worth to Bitcoin is a prudent starting point. This aligns with traditional portfolio strategies, which typically allocate 5–15% to gold (a safe-haven asset) to enhance stability and reduce risk. Taking Ray Dalio's All Weather portfolio as an example, where **15% of assets are allocated to Hard Assets (**gold/commodities). So I think 5% is a good starting point.

Third, take action. You can directly ask the AI assistant: "As a user who has completed KYC verification and resides in [fill in the jurisdiction], how can I purchase Bitcoin?"

Source: Bill Qian