Bitcoin vs Gold: Which is the Better Investment?
Gold vs Bitcoin head to head
For millennia, gold has been held as the safe haven ‘gold standard’ – so to speak, while bitcoin has been around for a little over a decade, achieving widespread acclaim over the course of its brief history. Let’s compare the two options in a head-to-head face off.
Transparency, safety, legality
Gold has an established system for trading, weighing and tracking its prestige. Given that it is a heavy physical commodity, it’s hard to steal or to corrupt the metal – even though both these are two viable possibilities given enough effort. By definition, bitcoin is more difficult to corrupt given that it is based on an encrypted, decentralised and complicated algorithm backed by the largest computer network infrastructure in existence. While legal inroads have been made in recent years, particularly with Canada’s recent declaration that “bitcoin is money”, a cohesive legal infrastructure has yet to be formed, most notably due to the fact that bitcoin is a global phenomenon and legal schematics are formed at a local level on a country by country basis.
Limited and rare
Both gold and bitcoin are finite entities, although it’s difficult to tell when gold’s supply will run out. On the contrary, bitcoin’s hardcoded money supply of 21 million is fixed, meaning that we will know when the last coin will be mined, how many coins are in circulation today and the exact number of coins there will be tomorrow (given a specific hash rate). In this sense, bitcoin has an exact answer to questions of supply.
Baseline value
Historically, gold has several applications, from luxury items like jewellery to specialised equipment in electronics and dentistry – though arguably these bear little weight on the precious metal’s historical acclaim.
On the other hand, bitcoin’s baseline value is in its technology, which to this day remains inseparable from the cryptocurrency due to its network effect as the largest crypto in existence. While some consider bitcoin to be “magic internet money”, the reality is that bitcoin is a definite, unalterable method of sending and storing value without the need to ever access any banking infrastructure or middle man. It is the ultimate form of sound money which cannot be debased or censored.
Liquidity
While it’s easier to get fiat cash for gold than for bitcoin, this is quickly changing as bitcoin ATMs, easily accessible digital wallets like the SwissBorg Wealth app, mobile applications and intermediary solutions such as stablecoins have brought a lot of liquidity to bitcoin. That said, this should be taken in the context of gold’s $9 trillion market cap to bitcoin’s $180 billion.
Volatility
One major worry for investors is bitcoin’s volatility, which can have wild swings in mere hours. At its highest peak, around the beginning of 2018, bitcoin reached a price of about $20,000 per coin. About a year later, the price of one bitcoin stood at around $4,000. It has since recovered those losses to around $10,000, but still has a way to go for its all-time highs. Having said that, bitcoin is a young asset which is still in its initial stages of price discovery, hence the wild price swings.
Since its inception in 2009, bitcoin has risen over 9 million percent in value, offering a wild ride for extremely early adopters in the meantime. Of course, volatility is not great for a safe haven asset narrative, and in this sense, gold is much less volatile and is sought-after in times of crisis, which often offers marginal increases in its value.
Bitcoin & Gold: The best of both worlds
In recent history, several stablecoins have launched which aim to provide stability versus bitcoin. Such coins include USD Coin (USDC) and Tether (USDT), which are the two largest stablecoins in the market. Both these coins are linked to the US Dollar Standard, the same way the US Dollar was linked to the gold standard prior to the 1970s. Given its historical precedent, those investors who look for stability might be better off looking to gold for its safe haven status. At the same time a balanced and diversified portfolio with a well-thought-out risk preference could expose an investor to the best of both worlds.