Bitcoin vs gold
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This page compares Bitcoin and gold as investable assets, taking you through all of the pros and cons and the key things you should consider. Read on to find out everything you need to know.
What is Bitcoin?
Created in 2009, Bitcoin is the oldest cryptocurrency. In essence, it is a form of digital currency that is designed to be used as a unit of exchange and a store of value. This is accomplished by using blockchain technology: an electronic ledger that is decentralised, meaning transactions are not monitored or validated by a central governing authority like a bank, or by an individual or third party. Instead, the entire system works democratically by using something Bitcoin miners and a proof-of-work (PoW) mechanism.
To learn more about Bitcoin, check out our guide on how to buy Bitcoin.
What is gold?
Gold is one of the world’s most popular and best known precious metals. Well over 40% of its demand comes from investors, while most of the rest is used by the jewellery industry. In addition, a significant amount of gold is owned by investment banks, and it also has growing use cases in the technology sector. Investors can buy gold stocks to seek exposure to the metal, use contracts for difference (CFDs), or buy it outright in a physical form.
To learn more about gold, check out our gold trading guide.
Bitcoin vs gold
So, having defined these two investable and tradeable assets, you might be forgiven for not understanding the comparison. The main reason Bitcoin and gold are compared is that they are the two most popular and easily acquirable assets that exist outside of the centralised financial system.
For instance, if you were to keep all of your money in the form of a fiat currency like GBP, USD or EUR, in an event like an economic crash, your capital would be subjected to significant consequences. By contrast, while owners of Bitcoin or gold still have to contend with market volatility, their assets remain protected from adverse economic events and crucially, from inflation.
This is precisely why gold is a key staple in the portfolios of hedge funds and investment banks, and it is also why major financial institutions are now making significant moves into the cryptocurrency sector. They are both considered to be ‘safe haven’ investments that can insulate investors’ portfolios from the likes of global recessions, COVID-19 and inflation. In fact, some have even labelled Bitcoin as ‘digital gold’ in recent years.
Now you understand why these two assets that seem so different are regularly pitted against one another. However, both assets have key differences that we outline further down this page.
What to consider when choosing between Bitcoin and gold
Below, we have listed the key considerations that you need to make when choosing between Bitcoin and gold. Read through them and see if you can identify which asset suits your financial goals better.
Before purchasing any asset, it is important to research its current market value; that way you can identify whether it is entering a bull cycle (price moving up) or a bear cycle (price falling down).
Both assets have their own distinct price behaviour. While gold and other popular tradeable commodities vary in price over extended, multi-year cycles, everything in the world of cryptocurrency tends to happen faster, and Bitcoin tends to enter bull and bear cycles at an accelerated pace.
Generally, in times of economic unrest, both Bitcoin and gold will perform well due to their safe-haven status. As a result, employing a contrarian strategy and buying either when prices are low and economic conditions are favourable can be an effective way of maximising your exposure to the upside.
Returns on offer
This is one of the most impactful comparisons given the disparity between the two. While gold used to be the king for investors, its growth has paled in comparison to Bitcoin in recent years. While gold struggles to break through the $2,000/oz barrier, Bitcoin has moved all the way from less than $100 to over $60,000 in less than 10 years. This has resulted in gargantuan returns for investors who got in early.
Moreover, while investors can no longer expect to receive such a dramatic multiple on their initial investment with Bitcoin, its growth does still consistently outpace that of gold. So, for investors looking for the most lucrative asset of the two, it is unquestionably Bitcoin.
While gold was first used as a form of money in 550 BC, blockchain technology – the basis of Bitcoin – was only founded in 2008. As a result, Bitcoin and cryptocurrencies like it are still at an incredibly early stage in terms of mainstream adoption.
Moreover, Bitcoin has a limited supply of 21 million coins, making it even more scarce than already-rare gold. While the total gold market currently has a greater market cap to Bitcoin, some analysts project that Bitcoin will surpass it by 2030. As a result, Bitcoin has superior growth credentials, and the proof is in the price action.
While both assets have good liquidity, Bitcoin is drastically more volatile than gold and has historically gained or lost tens of per cent in a single day, often in an unexpected, unpredictable fashion. By comparison, gold seldom throws up the same kind of volatility and is more of a robust performer day-to-day.
From a store of value standpoint, this means gold is a more stable asset than Bitcoin, and in addition, as a unit of exchange, Bitcoin’s sheer volatility renders it unsuitable for everyday transactions.
When it comes to risk, gold wins hands down. Because of its extended history as a tradeable asset and consumer good, gold is a more transparent and generally safer investment than Bitcoin. Consequently, it also has an edge in terms of legality, while Bitcoin’s global status remains contentious as financial regulators scrutinise it further.
In addition, while you can store your physical gold in a vault or at your home, and gold CFDs in your regulated broker account, Bitcoin is commonly stored in online exchange accounts or wallets, and despite increased security over the years, they are still prone to hacking theft. Handily, hardware wallets are also available, though for those who forget their keys, their bitcoin can be lost forever.
In short, there is a reason that gold remains the number one asset of choice for the world’s biggest investment banks: they trust it.
Green investing has become increasingly popular, and if this is the case, both Bitcoin and gold may present issues for you. Bitcoin is mined through a PoW mechanism to verify transactions, which requires a huge amount of computer power. As a result, companies and individuals have set up giant warehouses full of computer and cooling equipment to earn bitcoin and create a profitable operation, and some have speculated this is very damaging to the environment. Quite how this stacks up against the traditional finance system is open for debate though.
Gold is also mined, though in a rather different and more conventional fashion. The controversies of the mining industry are well known by all, and this remains a problematic subject today, especially with the ESG thematic gathering pace.
Gold has unmatched accessibility for all people, regardless of their economic standing or level of technological knowledge. Anyone can buy gold, and exposure is available in a wide variety of ways including gold coins, gold bars, gold stocks, gold ETFs. By contrast, buying some bitcoin does require some degree of technical knowledge, and while exchanges and brokers have made it more accessible in recent years, gold still has an edge in this instance.
Compare the best place to invest
The best way to invest in either Bitcoin or gold is through an online broker. The platforms below are some of the best beginner-friendly options around and you can sign up in just a few minutes by clicking the links in the table.
A quick recap of what we’ve learned
In summary, Bitcoin offers enormous growth. It is a new, emerging technology with a potentially lofty ceiling, and its decentralised nature allows investors to place their capital outside the established financial system. In addition, the anonymity of transactions and strong security provide investors with peace of mind. As it continues to enter the mainstream, more and more investors will begin to speculate on Bitcoin or use it as a hedge against inflation.
However, there are legal and regulatory concerns with Bitcoin, and it is extremely volatile. Moreover, the possibility of online fraud is something that must be taken into account, and the environmental controversy surrounding the crypto, as well as its complexity, can make it unapproachable.
By contrast, gold has none of these legal concerns and is much less volatile as the historical safe-haven asset. These credentials and its robust macro story has made it a staple commodity in the portfolios of all major investment banks. However, there is no denying that its diminishing returns are dramatically lower than found with Bitcoin, and there is less long-term growth potential with a similar level of environmental controversy.
Where can I learn more?
If you’d like to learn more about Bitcoin or gold, Invezz can help. Check out the links below for our in-depth cryptocurrency and commodities courses; they guide you step-by-step through everything you need to know.
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