Bitcoin vs Gold: Which is a Better Investment?
In 2009, Bitcoin (BTC), the first and most important cryptocurrency, took off. Since then, it has gone on a historic run to become the most productive asset of our times.
This review will help you determine whether Bitcoin and gold can be valuable investments. Indeed, the most well-understood narrative about Bitcoin is that it is digital gold. The digital currency comes second here only because it only appeared in 2009, while gold has existed for millennia.
Is Bitcoin a good investment? Is it a better asset than the precious metal known since immemorial? With a little digging, let’s find out if one asset is better than another as an inflation hedge. You will know what criteria will help you decide whether to invest in Bitcoin or gold.
Why Bitcoin and Gold Are So Often Compared
First, these assets, especially gold, are not always useful in a practical sense. Nowadays, nobody carries gold in their pocket to buy goods or services: the Dark Ages are long gone. On the other hand, Bitcoin is the #1 cryptocurrency, and more people use it as a payment tool. In a practical sense, it is more popular than gold as a payment tool. Yet, Bitcoin still can’t beat any fiat currency in terms of popularity among the general public.
Both assets are ‘mined’. Gold is literally mined, and Bitcoin is mined due to the blockchain’s completed transaction. People traditionally invest in gold to save their assets whenever the world enters another crisis. Yet, more and more, they also seem to flock to Bitcoin.
What Is an Inflation Hedge
Let’s come to terms: An inflation hedge is an investment meant to protect the investor against inflation as the purchasing power of money decreases over time. No investment is known to be a universal investment hedge, as every asset is volatile. Still, there are various degrees of volatility. We will learn about volatility relating to gold and Bitcoin.
Gold as an Investment
Gold’s utility over time has changed considerably. First, it was used as a currency for centuries. Later, gold became a haven during the stagflation in the 1970s. As inflation went into double-digit numbers, even in the United States, investing in gold became the most viable option for ordinary folk to keep wealth.
Is gold a good investment? It seems to hedge inflation in the 1970s perfectly. It rose from under $300 an ounce to over $2,500, a fantastic 700% increase—more than enough to beat galloping inflation.
Gold’s performance in the 1970s cemented it as a store of value. However, accounting for decades of inflation since that time came to a close, gold’s performance has been relatively weaker. During the 1980-2023 period, gold’s total inflation-adjusted return was an underwhelming -4 %. As you can see, it didn’t perform well as an inflation hedge.
Investing in Bitcoin
Gold fans typically point out that Bitcoin is a very volatile asset. This is true to some extent. However, in the long run, from 2009 up to April 2024, Bitcoin’s price increased from a mere $0,32 in 2010 to a whopping $70,000 as of today! Yes, there were bearish times when it lost three-quarters of its value.
Let’s look at the recent past. Bitcoin started 2021 at $32,782; it then skyrocketed to almost $69,000. Then, the crypto winter came, and Bitcoin dropped to $18,000 in late 2023. After that, the Renaissance began, and it hit $70,000 in May 2024.
Volatility is a double-edged sword. The same volatility helped Bitcoin become the best-performing asset of the 21st century. Interestingly, precise data proves that Bitcoin’s volatility is diminishing as the asset matures over time: it grows in price gradually. In the crypto world, the HODL strategy is known as keeping it in the pocket and will rise in value over the years. The HODL strategy is probably the best way to invest in Bitcoin.
So, Bitcoin’s volatility is actually a feature. The answer to the question, ‘Is Bitcoin worth investing in?’ is clear. For long-term investors, Bitcoin now looks like an option much more attractive than gold.
Regulation
Gold is hard to steal or fake. It enjoys an established system for trading, weighing, and tracking. In other words, gold is highly regulated. In many countries, you cannot cross borders while carrying gold without customs permission. When investing in gold, you must buy it from registered dealers. The only drawback is that you should buy physical gold only if you can safely store it.
Bitcoin is also hard to steal and fake, thanks to its encrypted system and De-Fi nature. Except for China and some other exceptions, it is generally legal to use across the borders of most countries. However, many countries have not yet developed the regulatory infrastructure that could exist to ensure that users are safe. This puts Bitcoin, a reliable asset by its nature, into the gray zone in some cases.
Utility
Gold has historically been used in many incarnations, from currency to luxury items to specialized applications in electronics and dentistry. This cross-functional utility has allowed gold to keep its value when other asset values fall.
On the other hand, Bitcoin is limited in its utility. It is currently used as a digital currency and a speculative investment tool. However, in De-Fi, Bitcoin has utility as a form of lending, borrowing, and more. It can also be involved in almost as many applications as gold.
Liquidity
Gold is very liquid; you will have no problem buying or selling it. The only thing would be its volatility over time.
Bitcoin, too, is a liquid asset. There are, however, some less popular cryptocurrencies that are not as liquid as Bitcoin. Yet, this digital asset can be exchanged freely for fiat money and other cryptocurrencies, including stablecoins like USDT.
Volatility
Bitcoin has historically proven to be subject to media attention, investor moods, regulatory agencies’ actions, and even hype. News from the crypto world could make investors panic and make quick decisions, making Bitcoin’s price very volatile. Historically, gold has no such features, so it probably makes it a safer investment.
Benefits and Drawbacks of Investing in Bitcoin vs Gold
In this section, let’s examine the advantages of both assets. Is it safe to invest in Bitcoin today? Or does gold seem like a more preferable option?
Gold Pros
- Tangible asset: One of gold’s main benefits is its tangibility. Unlike digital assets like Bitcoin, gold is a physical commodity. You can literally hold, touch, and keep it in your safe. This tangible nature provides a feeling of security that many investors find reassuring, especially during economic uncertainty.
- Reputation: Gold has stood the test of time as an efficient inflation hedge. Throughout history, gold has maintained its value and purchasing power, making it a cornerstone of many investment portfolios.
- Global acceptance: Gold is universally recognized as a form of currency and store of value. Its value is independent of any government and immune to political and economic turmoil. This feature ensures that gold keeps its value across borders and throughout time.
Gold Cons
- The main drawback: Out of several disadvantages of investing in gold, the primary one is that itdoesn’t seem an efficient payment method. Once you purchase it, you can only keep it or sell it. You can’t even use gold coins literally as money, just like in the old times.
Bitcoin Pros
- Scarcity: Bitcoin’s total supply is capped at 21 million coins, making it deflationary in nature, as planned by its founder, Satoshi Nakamoto. This limited supply contrasts with gold, which can be mined indefinitely, even at increasing cost and effort. Bitcoin’s scarcity ensures that its value is not subject to fiat money inflation, which is why this cryptocurrency looks like an attractive inflation hedge.
- Transparency: Bitcoin operates on a transparent and immutable blockchain, allowing for real-time verification of transactions and supply. This instills trust in Bitcoin and reduces the risk of fraud. Investors can track the flow of Bitcoins and verify their scarcity, enhancing their credibility.
- Accessibility: As a digital currency, Bitcoin is highly portable and easily transferable across borders. Transactions can be conducted quickly and securely; no intermediaries such as banks or financial agencies are needed. This borderless design makes this cryptocurrency accessible to anyone who can go online, making access to a hedge against inflation possible for an ever-increasing number of people.
Bitcoin Cons
- The main drawback: For too many people, Bitcoin as a digital currency remains a mystery, and they are afraid of entering the crypto realm. Such a perception limits Bitcoin as a fiat currency competitor and, eventually, an inflation hedge.
Should I Invest in Bitcoin or Gold?
The stats show that Bitcoin outperforms gold on a price basis. Bitcoin’s value has risen more significantly since its establishment than gold. Unlike gold, Bitcoin has a finite supply: a set limit of 21 million coins that no person, entity, or group can ever change.
On the other hand, while Bitcoin investment presents a convincing case as a digital alternative and inflation hedge, the tangible nature of gold provides comfort and familiarity that attracts a broader audience, including those less tech-savvy or skeptical of the crypto world just following the big players.
Whether Bitcoin is a better investment than gold depends on your goals. Some investors enjoy the risks of a high-venture business, while others don’t. Each asset has benefits and drawbacks. The best option would be communicating with a trusted financial advisor who can help you develop a safe and reliable investment strategy, depending on your purposes.
