Bitcoin has hit several record highs as investors flee other asset classes to participate in the “digital gold” rush. The cryptocurrency has managed to be a better store of value than many currencies and has performed better than all major asset classes in the last five years.
Buying gold or land has also served a good purpose in investor’s portfolios, helping them hedge against volatility and store value.
In this article, we will compare bitcoin with land and gold as an investment and answer the question: “Should you buy bitcoin, land, or gold?”
Bitcoin Enters the Scene
Gold used to be and still is a popular safe-haven asset, but it’s increasingly getting replaced by bitcoin. The cryptocurrency has established itself as a credible store of value and becomes even more appealing with the rapidly rising inflation rate in Nigeria and devaluation of the naira. As a result, investors are naturally moving towards it and often compare it to gold.
Bitcoin’s market capitalization is currently about 7% of gold’s total market value, rising from just 3% in 2020 after Wall Street firms and corporations started investing in it to diversify their portfolios.
Like gold and land, bitcoin has a limited amount. The total supply of bitcoin is 21 million.
Also, bitcoin is not issued by a federal government or central bank similar to gold and land. The authorities can’t decide to issue more land or gold, which helps to explain why investors often compare bitcoin to land or gold.
Should You Buy Bitcoin, Gold, or Land?
Land and gold are well-known assets. They have been around for thousands of years. Lots of Nigerians inherit large plots of land from their grandparents, which makes it a generational asset class. The same can be said of gold as well. It’s earned its stripes as a safe haven asset while Bitcoin is still the new kid on the block.
Let’s put these assets head-to-head to highlight their similarities, strengths, differences, and weaknesses.
Transparency: Bitcoin has a reputation for radical transparency. No one can sell you a fake bitcoin. Its infrastructure allows everyone to see every transaction that’s taking place, which means bitcoin ownership can easily be verified.
Gold also has a widely accepted established system for trading. However, you have to trust the custodian of the gold to report market movement in gold prices.
Land tends to have similar attributes, though a significant number of land transactions are obscure and end up in Nigerian courts to determine ownership.
Scarcity: All three assets are rare resources, but the definite supply we know for sure is that of bitcoin. The maximum supply of bitcoin will all be out in circulation by the year 2140.
In comparison, there’s no definite knowledge of the maximum supply of gold and land. There are rumors that gold can be gotten from asteroids and that Mars is liveable. However, we know land and gold aren’t infinitely in supply, which is good for their prices.
Liquidity: Land investments are highly illiquid. There’s no market to just sell your land in a day. Conversely, bitcoin is a near-cash asset, which means you can convert your asset to fiat money within minutes.
Gold is also fairly liquid and can be sold for fiat money quicker than plots of land, but it doesn’t have the same accessibility as bitcoin.
How to Approach Buying Bitcoin
One thing is clear: land, gold, and bitcoin have similar characteristics. However, bitcoin has outperformed the other two assets by quite the margin and is arguably well-positioned to continue to outperform.
The major issue for most people is the perceived risks involved with the price of bitcoin, whereas people tend to trust gold and land because of their age-old reputation as a store of value.
Gold has provided a shelter for investors whenever currencies are devalued or inflation skyrockets, making it a staple in many investors’ portfolios.
A lot of people have criticized bitcoin suggesting that it could go to zero or that a government-backed digital currency could supplant it. But like gold, it has provided a great alternative to fiat currencies in an ever-inflationary economy and has a bigger potential upside than gold.
Wall Street is also buying bitcoin like never before. Many analysts now advise clients to have larger allocations in bitcoin. What’s more, several high net-worth individuals have changed their mind recently about bitcoin, calling it a “gold-like asset alternative.”
Bitcoin won’t replace gold and land, but there’s room for all three in your portfolio. As we face the possibility of rising inflation and extreme currency devaluation in the future, a disinflationary asset like bitcoin could help to preserve the value of your money.