Bitcoin is hard to describe, so we often use analogies.

“Digital gold” is the most popular way to summarize bitcoin's purpose.

Today we take a deep dive into this analogy to see how gold and bitcoin stack up.

Let's start with size.

So bitcoin is roughly one-fiftieth the size of the total gold market today. And only one-five-hundredth the size of the whole money market.

Still, that's pretty significant, considering bitcoin only started in 2009. Gold has been money for thousands of years.

Now let's look at some common traits.

Both have the rare qualities that make a good speculative “store of value” asset.

Both are used as hedges against reckless monetary policy. They are assets that will likely rise in value if the old system becomes overloaded with debt (U.S. debt is at $21 trillion and counting) and is forced to “monetize” (print away) the debt.

This is why scarcity is an important quality. There's a limited supply of gold around the world, and there will only ever be 21 million bitcoins (with each bitcoin divisible into 100 million pieces).

Importantly, both assets can also be held by individuals. Stocks and bonds typically require a broker or bank to hold custody. This introduces “counterparty risk.” In other words, there's always a small chance that the other party may go bankrupt and take some of your assets down with it.

Could Bitcoin Challenge Gold?

I don't think gold is replaceable. There's something about gold that will always be desirable to some people. And its price is stable compared to bitcoin.

Bitcoin and other cryptos are something altogether different. They are the beginning of an alternative monetary system. One that people opt into rather than inherit.