Just How Hard Is It to Buy Bitcoin and Gold?
And if one is easier than the other, will this affect where the average Joe puts his money?
I spend a good deal of time arguing with “Gold Bugs” about whether bitcoin or gold is a better hedge in uncertain times. Y’know, just like the ones we’re in now.
The fact that a conversation like this was not even possible barely 10 years ago can’t be overlooked. The rate of change of everything we deal with in life now happens so quickly and gains acceptance so fast we instantly forget what life was like before we could do those very same things.
So, next time you order an item for same-day delivery on Amazon whilst sitting in an Uber on your way to your pre-booked AirBnB, take a minute to remember just how astonishing that feat actually is and what had to happen for it to be possible.
The same changes are now happening with money. Up until a few years ago, when you hedged against inflation or needed a safe haven in an uncertain market you simply bought gold, at least if you were an institution or wealthy individual. For the average man in the street, however, it’s always been a different story.
Although it has usually been possible to buy the precious metal in some form or other, it’s never been particularly straightforward. It’s also easy to get caught out if you don’t know what you’re doing as the gold business is not as immune from crime and counterfeit activities as you may think.
The point is that for almost all of modern human history there has never been a real choice for us as individuals when trying to protect our own wealth in the existing financial system, as so much of it is out of our control by design. Then again, since that’s always been the case, it’s also something we’ve always accepted.
The reality is that the vast majority of people feel powerless when they see their currencies devalue rapidly and feel there is little they can do. Whilst some will do their best to buy foreign “hard” currencies with what’s left of their wealth — usually, at a ridiculous premium from people you wouldn’t normally like to deal with — the most human of reactions is to batten down the hatches, attend a few protests, set up a few barter trades with colleagues and neighbors, and hope it will all turn out OK.
It rarely is.
That’s the trouble with a centralized financial system — there is an implied condition of using it that you trust the people making the decisions and to sort out any mess they make. History tells us this strategy is almost always wrong and should never be followed. In extreme cases, where inflation starts to spiral out of control, it’s far more likely that you’ll lose your income, savings, and assets.
But, if you are one of the enlightened few who proactively take action to protect their own position in a financial system that’s under pressure, where do you go?
The gold bugs say it’s a given that you’ll turn to the yellow metal, but these days there is another option — Bitcoin. In fact, whilst I would agree that the apparent risks of buying the latter in the first six years of its life were definitely more a “hopeful” than “strategic” purchase, that tide is clearly turning.
The argument is not yet settled and will no doubt rage on via forums, Twitter and YouTube channel shows for the foreseeable future, but let’s look at something that IS within our control right now:
Could the very act of purchasing and storing either asset be the deciding factor for the average man in the street?
Meet Joe Average
Joe’s class, race, sex, and background are largely unimportant here, even though, for ease, we’ll call him a “he”.
We’ll assume he’s of average intelligence, has a small amount of cash savings, works full time on a national average wage, owns an average house with his partner, and leases his car. He’s never bought equities and doesn’t really understand how funds and bonds work.
He does, however, understand inflation and uncertainty and has realized that if he doesn’t do something off his own back instead of relying on his government, he will pay the price later on.
In short, he is looking for a hedge — even if he doesn’t necessarily understand the full meaning of that word — and one that is not too complicated or expensive to make happen. Where does he go?
First, cancel the ‘like terms’
If you’re a total beginner buying either asset, it’s easy to get overwhelmed at first. With gold, it’s a question of where to start, what form to buy it in, and who to trust. With Bitcoin, it’s primarily understanding the concept well enough to make the leap to put real money into it.
So, for the purposes of this article, we’ll assume the psychological barrier of this process is of equal measure on both sides and, like an equation where you can safely cancel the like terms under the right conditions, we’ll remove it as a consideration.
This, after all, is really about physical purchase and storage.
For now, we’ll also assume that Joe lives in a developed country where buying either asset is about as easy as it gets. Since I’m based here, I’ll pick the U.K., but most of what follows could easily unfold in any first world country.
I have a very wide circle of friends and contacts who really are very different from each other, especially in financial terms.
However, it occurred to me only quite recently that I don’t actually know anyone who has ever bought any gold, except in a retail sense or in the form of a small bar of a few grams for novelty purposes. That’s quite an astonishing revelation in itself. Does this mean it’s particularly hard to do?
Well, let’s have a look and start with the obvious one first …
Of course, you can go to any jewelry store and buy some bling at any time, but you will pay a much higher premium for the gold itself and will immediately take a loss on resale. This is really about buying investment gold.
This is certainly much easier than it used to be and can actually be done online like any other product through such trusted companies as Sharps Pixley or The Royal Mint. Even better, most coins, bars, and bullion are classed as VAT free (but so is bitcoin) and a few coins are not even subject to Capital Gains Tax.
Ordering is simple and easy and you’ll need to go through the usual KYC process. You simply choose your size from 1g bars (which will set you back about £63 at the time of writing) up to 1kg bars that are valued at £49,200.
That’s the easy part. Now you’ll need to either pay for delivery and work out how to store it at home, or you’ll need to pay for a commercial and secure storage option. If you store it at home, this will require the installation of a safe and you will also need specialist insurance as, unsurprisingly, house insurance rarely covers bullion directly.
Paying for storage is the option that gives you peace of mind, but it also comes with a price tag. Even a basic safety deposit box at a bank will leave you with a bill of a couple of hundred pounds a year, so this also needs to be factored in.
There are also variations of this where you never actually see the gold at all and it remains in a vault at all times. In fact, some companies allow you to buy and sell just portions of physical gold in their vaults via investment platforms. Fees, of course, apply.
Remember, of course, that when it comes to reselling, you may need to prove the authenticity and purity of your gold, so you must keep paperwork and certificates safe as well.
Buying through funds
Many think the easiest way to buy gold is through an ETC (Exchange Traded Commodity) fund which follows the price of gold. Like shares, they can be bought and sold on investment platforms and can be held in various tax preferential funds.
There’s physically-backed versions and those that use derivatives, so understanding the difference between the two is important. As always, there are ongoing costs in terms of both buying and selling the funds and most carry an annual fee that needs to be factored in.
Our average Joe may struggle with this one as he hasn’t done any investing along these lines before since, at least at first glance, it really does seem quite complicated.
Buying Gold related shares and funds
It’s also possible to buy shares of companies involved in gold production, such as miners, processors, and distributors where success or failure depends on other factors apart from just the gold price.
However, whilst this might eradicate some of the holding costs, this requires a little more knowledge, so the average Joe would need to make a serious commitment to learning about it. He might, but equally, he might not.
Buying Gold - Conclusion
My guess is that if Joe was to venture into buying gold for the first time, he would most likely buy the physical gold and store it at home or in a local secure location. It’s relatively easy to do and understand, can (more or less) be done in an amount that suits his pocket and, well, because it’s pretty cool to actually handle the gold.
In the simplest form, buying Bitcoin is as simple as downloading an app, doing the same KYC you’d need to do for buying gold (or any banking app) and then using your credit card to buy the Bitcoin you want in the exact quantity you want, there and then. The whole process would take minutes for the first purchase, seconds for any thereafter, and there are no storage costs.
Of course, Joe would have to take precautions with his bitcoin in a similar way to his gold and may need to invest a little time to understand the best options for long term storage, but aside from that, the process is easy and instant.
The Pros and Cons
There IS something reassuring about physical gold that can’t be denied, although if you owned in it any quantity you’d never see it as it would be in safe storage. Counterfeiting is also a problem in the gold industry and Joe would have to be sure about what he was buying.
Gold is harder to transport, can’t be instantly exchanged for cash (as there’s usually a process to go through) and incurs a cost of some sort to hold. It also yields no dividends or interest. The value in gold is peace of mind — there is a near certainty that its value will be at least what you paid for it in the future.
There’s one more consideration with physical gold that Joe at least should be aware of — it can be confiscated in times of economic crisis. And it’s already happened several times in history.
In 1933 in America, Roosevelt signed “Executive Order 6102” which forced the confiscation of all gold from Americans and private institutions for the “New Deal” policy. It happened again in Australia in 1959 and in the U.K. severe limits on private gold ownership were introduced in 1966.
All of these laws lasted a long time and were eventually repealed, but could it ever happen again? In these uncertain times, it could be argued anything is possible. Bitcoin, of course, cannot suffer the same fate.
However, it IS much easier now to buy gold than it was even 10 years ago, even for our average Joe. It is, therefore, a real possibility to do so as long as he buys from a reputable source and takes the necessary precautions.
Bitcoin, on the other hand, is even quicker and easier to buy using processes Joe is already used to, much cheaper to store and comes with an instant and irrefutable guarantee that it is genuine. It can also be put to work by earning interest, an option increasingly available as standard in many wallets. However, it is still young and volatile with all the disadvantages that bring and the increased risk associated with it.
The bottom line
The gold bugs continuously and confidently state that people will turn to gold when confidence in fiat and the markets, in general, is low.
However, I maintain this is an over-simplified view, especially since we already have a number of great examples of people turning to Bitcoin over gold on an individual basis, most recently from Argentina and Venezuela. In these countries, economic worries are forefront in the minds of the citizens, and bitcoin trading volume has been growing dramatically, mainly due to ease of access compared to other possibilities. There’s an extra irony in that both of these countries are significant gold producers.
But perhaps the bigger question is why we need to assume these things have to be mutually exclusive? Sure, Joe has limited funds available, but what’s to say he can’t hold a portion of both to “hedge the hedge?”
After all, if there’s one thing we must agree on after looking at the options, it’s that Joe can technically do either. Or perhaps that should be that “Joe can do both.”
And if that’s the case, then no-one — whether Bitcoiner or Gold Bug — can predict where he’ll ultimately put his money.
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As each day goes by this becomes more important … and harder to do.
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Disclosure: The author of this opinion piece has been heavily involved with bitcoin for several years and holds a substantial cryptocurrency portfolio, including bitcoin. He also has a mining operation running the SHA-256 algorithm based in Siberia and is a published author on the subject of promoting the understanding of cryptocurrency. Jason is an analyst at Quantum Economics.
Disclaimer: Investing in any asset class is risky. The above should not be taken as financial advice, nor construed as so. Always do your own research before investing or consult with a professional financial planner.