Bitcoin vs Gold

May 1


Gold Vs Bitcoin: Which is a Better Investment?

Ilir Salihi

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It might seem strange that a hedge such as Bitcoin gets the moniker "digital gold". After all, the two investments couldn't be more different, right?

One, a hard physical asset, the other entirely digital. But the more we get into why these two assets are popular, the more we understand why the comparisons are made over and over again.

And certainly, it goes past just a comparison. Plenty of investors are now pitting gold vs Bitcoin in a kind of battle of alternative-asset hedges. Anyone who's heard of Bitcoin knows that it's being compared to the precious metal, and the same the other way around. This kind of rivalry stems from two of these assets' fundamentals, though they share many more:

  1. Both gold and Bitcoin are only assets in the secondary sense, and their primary purpose and use is as a currency or means of exchange
  2. Both have a fixed cap that has always made the case for gold, but is becoming exceedingly precious in times of money printing

Inflation has been a theme far longer than Bitcoin has been around, and gold was the primary, if not the only method of fighting against it. After the 2008 financial crisis, Bitcoin sprung up with a straightforward mission: a fixed-supply currency that is decentralized and available to everyone.

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Bitcoin vs Central Banks

While Bitcoin's whitepaper doesn't delve into central bank money manipulation, the decentralized digital currency was seen as a kind of anti-financial-establishment tool from the get-go. Central or private banks couldn't print it or manipulate it, and everyone would have access to it.

As popularity exploded, central and private banks could no longer afford to act like crypto's "competitor" and are now trying to accommodate this rapidly-growing market. As the U.S. government rolled out its multi-trillion-dollar stimulus, we even heard plenty of debate over pegging Bitcoin to the U.S. dollar to prevent hyperinflation.

The World Gold Council Tells Us…

As in the case of Bitcoin, central and private banks have overtly moved away from gold. They want everyone to think that gold is outdated, or a nostalgic idea. You'll rarely, if ever, hear a central banker tout or even mention gold. Yet central banks around the world continue stockpiling gold, many of them outwardly stating that it gives them sovereign clout.

The U.S. is the world's largest economy and superpower. Not coincidentally, it has the largest sovereign gold hoard out of any nation by a wide, if not tremendous margin. Governments are very much aware of the kind of financial freedom that both gold and Bitcoin offer. Let's pit the two assets against each other, then, starting with gold's tale of the tape.

Related: Physical Gold vs Paper Gold - Which is Better?

Gold vs Bitcoin: The Benefits of Gold Investment

Those who buy physical gold and other precious metals know what they're getting. So long as they can access it, they own an asset with no counterparty risk that can be sold anywhere. It's going to appreciate in value over time compared to fiat currencies, but unlike other assets, it won't introduce huge risks.

Even storage is a much lesser issue. Because gold doesn't blemish, so long as it's out of sight, it can be stashed practically anywhere. And it often is. It resists all elements and conditions, as well as wear and tear. Some gold products chip off more easily than others, but that's about it.

Gold is exceptionally liquid in every sense. When one talks about asset liquidity, they're usually referring to the trading volume. But gold's liquidity extends far past that, often even to the literal sense. It can be transported, stored, traded, molded and so on. When it's time to scramble, would you rather own Apple stocks or gold bars?

This kind of versatility and resilience have warranted gold's reputation. Whatever crisis hits, you can expect the yellow metal to not only protect you, but outperform in doing so. And when all is going great, the gold market is at worst slow-moving.

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The Downsides of Gold Investment

So long as we're talking physical gold, and we should, gold can prove challenging to store. It may resist elements, but thieves are another matter. That means bullion investors need either a third-party vault or a good safe.

For all the great price action gold has posted, many feel that it's too slow to move up. Despite its primary role being a store of value, investors can feel disappointed by the asset's performance relative to stocks. This is, however, a common misconception, as gold actually outperforms stocks over the long term.

While gold is liquid, it's fairly clunky compared to currencies. Trading physical gold can prove cumbersome. There's never going to be any shortage of buyers. But you'll be dealing with assays, low offers and so forth. Liquidating your gold at a price you deem acceptable can take slightly longer than would be called ideal. That's not something Bitcoin is burdened by.

Bitcoin vs Gold: The Benefits of Bitcoin Investment

Here is where the "digital gold" part comes into play. Unlike as in the case of bullion, Bitcoin can be sold within hours. It can be exchanged for any number of assets even if you utilize cold storage. Let's break this part down a bit.

The equivalent of vault or safe storage of gold bullion in Bitcoin's case would be hardware wallets. These are much smaller, far less conspicuous and not least of all, easy to access. Funds from these wallets can be moved online at any time, making Bitcoin liquidation a breeze. However much Bitcoin you have on your USB drive, you can sell it at the spot price very quickly. It's also worth noting that the USB drive, or hardware wallet, can store a vault's worth of wealth.

Because of its growing popularity, Bitcoin is quickly becoming accepted as a payment method all over the world. Whereas gold has been shoved aside from this role, Bitcoin is coming into it. True, every merchant can be convinced to take gold coins or bars as payment. But it's not exactly the same as accepting them natively.

While gold has considerable upside, Bitcoin's is infamous. In 2017, it went from $2,000 to almost $20,000 by December before falling to $3,000 over the next few months. Five years later, a $40,000 price is considered "being stuck in a rout".

Related: BitIRA Review - Is the Crypto IRA Company Legit? 

gold and bitcoin - which is better?

Downsides of Bitcoin Investment

The biggest perk of Bitcoin investment for most is also its biggest downside. What else could we mean besides volatility? That's right: the crypto market is known for wild, often overnight swings to the tune of 20% or more. In the stock market, a 20% correction would translate to a recession, more likely than not. In the crypto market, it's an everyday occurrence.

This kind of volatility has attracted the attention of countless speculators, but it can also be too much for some. Many find even the top 500 stocks too risky to invest in due to worries of some kind of collapse. This group will probably want to steer clear of an asset that can lose 50% over a few weeks, accompanied by no shortage of headlines proclaiming that the crypto market is done for.

Bitcoin's digital property can be seen as both good and bad. If the tokens are in an online wallet, they're at the whims of quite a few things. If they're stored offline, the digital wallet still isn't nearly as durable as gold coins or bars. And it still needs to be plugged into something to move the funds.

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Rising Inflation and the Rarity of Gold and Bitcoin

During times of a hard gold standard, it was understood that an IOU such as a sovereign currency needs to have a solid backing. Gold emerged as the obvious choice. Its finite supply and overall scarcity made it an ideal tether to the U.S. dollar. You'd have price fluctuations of things like consumer goods, but they would move up and down based on how gold's supply was faring during, say, a particular year.

These days, price fluctuations are going in only one direction. Prices of everything are going up because central banks see inflation as a good thing and are free to print money with no backing. This has been working well enough so far because there is a lot of faith in the U.S. dollar. But one needs to look no further than Venezuela and its hyperinflated bolivar to see what things look like when faith in a free-floating currency evaporates.

The Meaning of Gold's and Bitcoin's Cap

We all know gold is rare, but its supply is considerably harder to outline than that of Bitcoin. Suffice to say that gold is a very difficult metal to mine or prospect, and that the mining industry is not a thriving one. Mining has been getting progressively harder. Industry experts call this the "low-hanging fruit" phenomenon: the easily-available gold has already been mined.

New deposits require deeper and more expensive mining endeavors, putting a constant strain on these companies.

Bitcoin's scarcity is much more straightforward. It has a token limit of 21 million. It's "mined" using high-powered computers. Bitcoin mining used to be feasible from a personal computer, and certainly, those who mined a few tokens early on and held onto them have turned quite a profit.

These days, Bitcoin mining is ran by a specialized industry. We are now hovering above 19 million tokens, and miners' rewards are constantly getting sliced. In a sense, many consider Bitcoin as already having reached its limited amount. But we'll expand on why this is not the case in a bit, and why it's bound to get exponentially more valuable as we get closer to 21 million tokens.

Related: Coinbase Review - Inside Look at the Largest U.S. Based Crypto Exchange 

Gold vs Bitcoin as a store of value and inflation hedge

 Right now, we have to say that the only thing keeping Bitcoin competitive in this discussion is its accessibility. The digital currency is simply too volatile to be compared to gold when it comes to storing value and hedging against inflation.

Losing your wealth slowly due to inflation and currency depreciation isn't nice. But losing it overnight is worse. Gold investors don't need to worry if tomorrow is the day they lose a third of their investment.

This is why HODLing is very popular in the crypto sphere. For all its losses, Bitcoin always ends up recapturing the price targets and climbing far higher. But there is a lot of nerve-wracking in-between. There are many question marks surrounding the crypto market, and even if none of them are valid, it's not something you'd like to have in a wealth-protection asset.

There is no going around gold's safety compared to Bitcoin over any period of time. Still, one could argue that there is a lot of safety in Bitcoin, too. Just of the more volatile kind. 


Bitcoin as the Next Gold?

What happens when the 21 million Bitcoin cap is reached? This is one of the most interesting facets of the crypto market. Those who struggle to understand Bitcoin's valuations should take a look at how mining and miners' rewards have been moving. The closer we get to 21 million, the lesser the miners' rewards in terms of tokens. That's why tokens have been soaring in valuations.

Bitcoin miners have been crawling to get between 18 and 19 million, the latter having just been reached in April. The remaining 2 million are expected to take over a century to mine. With each incremental step towards 21 million, we can expect prices to move much higher. Because of how hard it is to mine, many already consider Bitcoin's cap to be reached, as mining is now resigned to massive plants.

Related: Augusta Precious Metals Review - Is Augusta a Reputable Gold Dealer?

Making projections over what will happen in a century is fairly nonsensical. We may yet see Bitcoin mining expedited, or have any number of curveballs happen. Will Bitcoin overtake gold once the cap is hit, as it will indeed be scarcer than gold? We'll let someone else answer that question.

Until then, investors in both can expect the same. Gold will offer a slow increase in wealth over a long period of time with very little stress to the investor in any circumstance. Bitcoin will offer a fast increase in wealth over a long period of time with more volatility and stress to the investor in lots of circumstances. From this standpoint, one might say they're equally as effective in their roles, with the choice boiling down to risk tolerance of individual investors.

It’s always wise to seek advice from a qualified professional before making any financial decisions. Precious metals, cryptocurrencies, stocks, and other financial vehicles all have their share of risk and volatility. It’s smart to put together a diversified basket of investments that make sense for your personal financial situation.

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About the Author

Ilir Salihi is the founder and senior editor at He oversees all content for IncomeInsider and its partner sites. His articles and insights have been featured on Barchart, Benzinga, and, among other prominent media channels.

Ilir Salihi


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