When the Winklevoss twins – Tyler and Cameron Winklevoss – became the world's first bitcoin billionaires, they described the cryptocurrency to be "better than gold". But is bitcoin actually going to replace gold? And is it worth investing in the new "Gold 2.0"?

Bitcoin Gold
A collection of Bitcoin (virtual currency) tokens are displayed in this picture illustration taken December 8, 2017.REUTERS/Benoit Tessier/Illustration

There's no doubt bitcoin's valuation is rapidly increasing. Its price has doubled four times this year alone, from $1,000 in January to $16,200 on its first trading day on the Chicago exchange.

As per a report by Fortune, investors are increasingly searching online for how to buy bitcoin, rather than gold. Many investors think that the price of bitcoin will continue to rise, and that it is independent of inflation. Therefore, a lot of investors are using bitcoin as a store of value just like gold.

According to the World Gold Council, there is 40,000 tonnes of gold that is held as private investment, that is almost 21 percent of all of the world's gold. At today's rate that's worth $1.6 trillion.

Bitcoin is currently limited to 16 million and only 21 million will ever exist. Which means that if bitcoin was to replace gold at this stage, each bitcoin would be valued at $76,000 – nearly five times its current value.  

But out of all the world's investments – somewhere between $40 trillion and $140 trillion - gold accounts for only a tiny percentage. A lot of the investment goes into property and other immovable assets too. Gold is still an unconventional investment for many. Bitcoin, on the other hand, is much easier to buy and hold. And if bitcoin attracts more investors, its value is bound to increase still further.

Despite its potential to be a store of value that is immune to price fluctuations of other assets, a lot of analysts and economists believe that cryptocurrencies, including bitcoin, are just like a "bubble" which would ultimately burst.

According to Paul Donovan, Global Chief Economist at the Swiss Bank's asset management arm, "Bubbles are by definition irrational. Predicting when a bubble will burst cannot use rational analysis. Ignoring a bubble is the best course of action."

Some also suggest that bitcoin's valuation might get diluted as more and more cryptocurrencies emerge, despite the fact that only 21 million will ever exist. Bitcoin also does not generate revenue or earnings like a stock or interest like a bond, but if it does replace gold investment and surpasses it, its ultimate price could become much higher than what it is today.

Cameron Winklevoss, one of the twins who invested AUS $14million in bitcoins in 2013, told CNBC: "We've always felt that bitcoin, given its properties, is gold 2.0 — it disrupts gold. Gold is scarce, bitcoin is actually fixed. Bitcoin is way more portable and way more divisible. At a $300 billion market cap, it's certainly seen a lot of price appreciation, but gold is at $6 trillion and if bitcoin disrupting gold is true and it plays out ... then you can see 10 to 20 times appreciation because there is a significant delta still."

Source: South China Morning Post