Here are 4 reasons why I believe bitcoin will serve as a better hedge against inflation than gold or silver in the years to come:
1) Limited supply. We know exactly how many bitcoin will ever be mined. As of this writing, there are 11,956,400 bitcoins in existence. New bitcoins will continue to be “mined” until we reach 21,000,000. Once we hit that number that’s it. No more bitcoin. Nada. Zilch. That, of course, stands in stark contact to gold, silver and fiat currencies.
2) Simplicity. Buying bitcoin is as easy as transferring money between say your checking and savings accounts (check out my guide on How to buy bitcoin). Buying gold or silver requires some knowledge. You’ve either got to buy physical coins or bullion, mining stocks, ETFs, a stake in a trust or you need to pay someone else to buy and hold gold or silver for you. With bitcoin, you’re responsible for keeping your private security keys safe. That’s it.
3) Liquidity. There is no practical limit to how much or how little bitcoin you can buy. Want to buy $0.25 worth? Go for it. Want to buy $1,000,000? You can do that, too. Think of it like going to the currency exchange counter after flying to Mexico. You hand someone some dollars, they give you pesos. If you’re trying to sell an ounce of gold that’s worth $1,300 on the other hand, you might have to search quite a bit to find a buyer near you.
4) Speed. We’ve already seen how quickly the price of bitcoin can move. That’s particularly true in the midst of a crisis of confidence or currency problem. Take the example of Cyprus. Earlier this year, the tiny island country announced it was confiscating a portion of the funds foreigners held in the country’s bank accounts as part of a bailout package. In a rush to withdraw their cash from Cypriot banks, investors poured their money into bitcoin pushing the price of the digital currency up twofold in a week. Similar currency problems in other countries could accelerate bitcoin’s phenomenal growth.
How high could bitcoin go? Check out our post: The case for bitcoin at $100,000.