Today, we are going to discuss a very important question – Gold vs Bitcoin – Which is the better investment? In order to understand the answer we must ask ourselves, Is Bitcoin rarer than Gold? Well, Gold is one of the more rare metals, while Bitcoin is rare compared to other cryptocurrencies.
They both are rare in their respective categories, but which is better in terms of long-term investment? Gold beats Bitcoin as an inflation hedge for a variety of reasons outlined in this post. In fact, many experts don’t view Bitcoin or other cryptocurrencies as an inflation hedge, at least not yet.
As inflation rages and touches 40-year highs, investors are looking for anything to mitigate its effects on their portfolios. In such times, investors often turn to commodities, in particular gold, which has a long history as an inflation hedge. More recently, some traders have been touting Bitcoin and other cryptocurrencies as alternative ways to hedge inflation.
“A hedge can be a correlated but contra position in the movement of an asset price or an uncorrelated entity that provides stability in periods of volatility,” says Emily Man, investor at Redpoint Ventures, a venture capital firm in the San Francisco Bay area.
History as An Inflation Hedge – How Bitcoin and Gold Compare
On the question of their history as inflation hedges, there’s little question that gold has a strong background, while Bitcoin has barely more than a decade of existence to justify itself.
“Gold has thousands of years of established history as a resolute store of value,” says Fergus Hodgson, director of Econ Americas, roving editor of Gold Newsletter. “Over an extended period, it is about the safest inflation hedge you can get.”
In contrast, cryptocurrency is a relative newcomer to global asset markets.
Gold has been an asset that holds value over long periods and is used to hedge against market downturns.
Bitcoin is young and unproven as an investment, but cryptocurrency speculators are using it to store value and hedge against corrections and recessions.
Which one is a better investment depends on your risk tolerance, investing goals, strategy, and how much capital you can handle losing.
Bitcoin
Bitcoin launched in 2009—the decentralized technology ushered in a new era in finance and investing. Initially, these digital currencies were only attractive to a few niche enthusiasts. In 2010, early speculators discovered the Bitcoins they had previously purchased for fractions of a cent had grown to $0.09 per Bitcoin. Large-scale Bitcoin mining farms and pools became popular, and cryptocurrency exchanges emerged.
Gold
Gold historically performs well during market corrections because it maintains its value; its price holds somewhat steady, then tends to rise as investors move from stocks to gold if a recession is threatening. This makes it useful as a hedge—an investment that moves opposite another—against market corrections or recessions.
During the Covid-19 pandemic, not all investors turned to Bitcoin; many followed traditional strategies and transitioned to gold. As a result, gold’s price skyrocketed from just below $1,300 in early 2019 to nearly $2,100 in mid-2020.
Through 2021, its price dropped as economies slowly recovered, but it still averaged higher than pre-pandemic recession levels.
Bitcoin vs Gold – Key Differences
Gold has dominated the economies and markets for thousands of years as a means of exchange and holding wealth. Bitcoin was launched in 2009 and only achieved widespread recognition several years later. Other key differences can provide clues into which one you might want to include in your portfolio.
If you had several hundred Bitcoin, you might have a hard time liquidating them if you wanted to get out of cryptocurrency in a hurry – exchanges such as Coinbase only allow for $50,000 liquidation of cryptocurrency per day.
If Bitcoin’s price is higher than the daily limit allowed by your exchange, you’ll only be able to do it in smaller increments. If you don’t own many Bitcoins, it might be a much more liquid asset for you.
Additionally, if the market swings wildly and many investors begin selling their Bitcoin, its price would drop dramatically in response. Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is highly risky and speculative.
Which is the Better Investment? Risk-Reward Scenarios Favor Gold
One of gold’s strongest selling points is its reliability as a store of value during times of crisis and uncertainty. Gold’s status as the world’s largest tradable asset, valued at over $12 trillion, positions it as the primary candidate to benefit from capital inflows whenever investors exit traditional markets like stocks and real estate.
Bitcoin is not for conservative investors looking for a safe haven or a store of value either. It’s purely for speculators looking for action, who don’t mind the risk of trading a worthless digital asset that will eventually zero out. Don’t get caught long when the music stops.
Schiff’s latest comment is in line with his prior messages about the leading cryptocurrency. He wrote in May that Bitcoin is a fraud” and is “nothing,” adding that the value of the asset in his eyes is $0.
Though gold may be a better hedge against inflation than Bitcoin, could traders at least use Bitcoin as a hedge against a volatile stock market? Even that seems dubious.
We do have historical evidence as to how cryptos have behaved during systemic market selloffs,” Perlaky says. Crypto behaves more like a risky asset, more like tech stocks or momentum stocks.
You can also check out daily Gold Rates on our website.