Bitcoin has invariably been dubbed a ‘digital gold’. There is a reason why gold bugs do not exactly hold this reference in high regard. It has something to do with Bitcoin’s current parabolic price movement. While it is the reality, it is unfathomable how the decade-old Bitcoin could potentially replace the century-old Gold as a safe haven for investors in times of economic turmoils.
However, despite Bitcoin’s meteoric rise, gold bugs are not throwing in the towel just yet. There are several reasons why. Although Bitcoin is currently more valuable than Gold, its volatility makes it a risky investment and one that investors would think twice before adding to their portfolio. Also, Bitcoin drives a weak bargain when it comes to proving itself a reliable store of value.
On the other hand, Gold has proved to be a stable investment with good chances of profitability. Although it is a bit slower than bitcoin, it is a trusted store of wealth with fewer risks than the highly speculative cryptocurrency.
The two assets share a number of similarities, although they are very different. For instance, Gold is a physical asset, and Bitcoin is a digital asset. So, how do bitcoin and Gold stack up? Which is the better investment in 2023?
It really depends on your investment goals. Are you looking for a short-term or longer-term investment? Would you be willing to bet on a riskier asset with potentially higher gains or prefer a stable asset with lower gains in the long-term?
In this guide, we will help you make an informed decision about which of the two to invest in. But first, let’s go through a quick overview and draw a distinction between the two.
Gold Vs Bitcoin: Market Overview
To better understand which of these two assets is a better investment, we need to look at the current market standing and how each has performed over the years.
Gold Market Overview
Gold - the yellow, shiny metal - is perhaps the most valuable of precious metals. The metal has been used for many generations as a store of value. Although the gold market is not as speculative as that of cryptocurrencies, it has its share of volatility.
Gold hit its highest price of US$2,067.15 on August 7, 2020. According to experts, this price rise was inspired largely by the economic uncertainty brought about by the COVID-19 pandemic. With the possibility of a recession, most people rushed to invest their money in Gold, thus pushing its price by 32% in the first eight months of 2020.
Although the price has remained fairly stable since then, it saw a steady decline from the start of 2021 as Bitcoin prices soared higher. This is not the first time gold prices are dropping after a promising high. For instance, in late 2011, Gold rose as high as $1,920 per ounce then steadily steeped down to about $1,220 by 2013. The price then stabilized between $1,100 and $1,300 for the next five years; that is from 2014 to early 2019. Towards the end of 2019, the gold prices began rising again due to a slowdown in economic growth and geopolitical issues.
By January 2020, Gold was once again trading above the $1,600 mark and went ahead to attain a new high in the second half of 2020. As you can see, the gold price movement is not as drastic as that of Bitcoin. While Gold only drops or rises by a few hundred dollars, Bitcoin can lose or gain thousands of dollars in just a few days.
This is why Gold is considered a more stable investment and a reliable cushion from economic downturns. Gold is unique in that it tends to rise in value as other commodities fall. This is because when the economy weakens, people rush to invest their money in Gold, so they don’t lose it in other vulnerable investments. As more people start buying Gold, the price shoots up and only falls when investors start selling it.
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Bitcoin Market Overview
Bitcoin price charts are characterized by steep descents and ascents. Although it is said to be more profitable than Gold, Bitcoin is very volatile, making it a risky investment. While gold prices began dropping in 2021, Bitcoin soared to reach historic highs. The year is still very young, but Bitcoin has already reached levels that were unimaginable just a few months ago.
Although most experts have projected bitcoin to hit the $100,000 mark by the end of this year, several others think it might be ballooning into a bubble. Bitcoin prices are not as easy to predict as those of Gold due to their speculative nature. However, there is a strong indication that bitcoin will soar even higher this year.
This is in part due to increased institutional adoption this year. Already several companies have shown interest in Bitcoin and the possibility of using it in transactions.
JP Morgan’s analysts report that the current Bitcoin adoption craze could lead to a $600 billion additional Bitcoin demand. This will not only spike its price but also widen its market cap and make it even more valuable.
Apart from institutional adoption, other factors such as economic instability and industry developments are expected to bump Bitcoin’s price even further. In a nutshell, below are some factors that might cause the Bitcoin price to rise or fall:
- Supply and market demand
- Competing cryptocurrencies
- Internal governance
- Trading platform
- Cost of mining
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Main Differences Between Bitcoin And Gold
Bitcoin and Gold are two very different assets. For once, one is digital, and the other is a physical asset. Bitcoin is more volatile than Gold but offers better higher gains when prices rise.
Below are the differences between Gold and Bitcoin.
Storage Procedures
Even before considering the investment aspect, the most obvious difference between Bitcoin and Gold is the form in which they are stored. While Bitcoin is entirely digital, Gold is a physical asset that can also be used to make tangible products.
Although it is possible to trade Gold digitally, there is no way to turn Bitcoin into a physical form. It is merely a computer file that can only be stored in a digital file. The value of Bitcoin is in what is known as a private key, which is a secret number that facilitates bitcoin transactions.
Gold is usually stored in personal home-based safes/vaults, or the more secure deposit boxes in banks.
Volatility
Although both assets are speculative investments, bitcoin is more volatile than Gold. Gold is known for being a slow-growing yet steady investment. This makes it a great store of value since its price fluctuation is not as significant as that of Bitcoin.
In fact, the gold price has been fairly stable since 2013. It is, therefore, a good investment asset for the more conservative investors who are not willing to get tangled in Bitcoin’s insane volatility.
Bitcoin, on the other hand, experiences huge price fluctuations in a short time. There have been a lot of instances when Bitcoin crashed from an all-time high, rendering investors bankrupt. There have also been instances when Bitcoin prices tripled in a few days and made its holders outlandish profits.
Longevity
While Bitcoin was launched merely a decade ago, Gold has been in existence for more than 700 years. Why is this important?
For once, it approves Gold’s credibility and reliability as a tool for wealth creation. So, although Bitcoin is doing well for itself, it still hasn’t fully proved itself a reliable, safe haven for investors. Gold has been stable for the longest time, while bitcoin that is still an emerging investment, is already showing maddening fluctuations.
In this case, if you are a risk-averse investor, Gold becomes an easy pick.
On the other hand, Bitcoin’s short life is a proxy for the great growth potential it has. Unlike Gold, Bitcoin promises to disrupt the financial market and possibly supplant fiat currency someday.
Utility as a Currency
While Bitcoin has now become an investable asset, it was initially designed to be an alternative currency. It is still viable as such. However, to be fully recognized as a currency, Bitcoin needs to be a reliable medium of exchange and store of value.
Gold seems to be doing the reverse.
In the past, it was possible to use Gold as a currency to buy goods and services. However, in the traditional financial market today, Gold is recognized more as an investment asset than a currency.
Similarities Between Bitcoin And Gold
While these two assets have glaring differences, they also have a few things in common. Although these similarities do not parallel them, they help you as an investor make a more educated decision.
Here are some similarities between Bitcoin and Gold you might need to factor in while making your final decision.
Both are Considered Safe-Haven Assets
Gold has long established its credibility as a safe haven for investors. It is stable, profitable with tolerable volatility.
Bitcoin is also steadily becoming a safe haven asset. And while gold bugs argue that the jury is still out on whether Bitcoin should be considered a reliable hedge against inflation, the cryptocurrency has been around long enough to earn that trust.
Recently, investors have rushed to buy and hold bitcoin in the face of a possible economic recession.
Both Have a Limited Supply
There are only 21 million bitcoins in circulation. Already, over 18 million have been mined, meaning Bitcoin might run out by around 2140. This makes it a limited digital asset and, therefore, very valuable.
On the other hand, experts have reported that gold production is quickly declining. By 2050, the precious metal might become economically unsustainable. So, right now, it is safe to assume that Gold has also become a limited asset. In the next 50 years or so, there might not be any more gold to mine.
When To Invest In Gold
There are a number of instances when investing in Gold might be better than investing in Bitcoin. Let’s quickly go through some of these instances.
Stable Investment
While Gold is generally perceived to be slower than Bitcoin in terms of growth, it has proved to be a stable investment in the long term. The gold market has steadily grown over time, and for the longest time, this asset has been a safe haven investment for most people.
One thing that makes Gold stand out is its ability to grow in the face of an economic recession. Unlike Bitcoin, which is highly unpredictable, Gold is a great way to store your wealth.
Long-term Investment
Gold has been used for centuries as a long-term store of value. Unlike Bitcoin, Gold can maintain its value for long periods. It‘s beautiful, valuable, and scarce, meaning it forms an ideal baseline for trading and storing value.
Gold has also been around for a long time. It has been used by different civilizations and has been able to maintain its value for all those centuries. So, even with the conspiracy theory of being replaced by Bitcoin, Gold will still be valuable many years from now.
If You Prefer a Physical Asset
Even with the cryptocurrency craze and the talk about digital money, there are people who still value the tangibility of their investment. Sometimes, you want to be able to see and appreciate your investment. That is not something you can get from Bitcoin and other cryptocurrencies.
The idea of investing in something you can’t see can be scary, especially for the old school baby boomers who still prefer trading on paper. If you are one of those, and you prefer a physical investment as opposed to a digital one, Gold is the better option.
Safer Investment
Gold is not only less risky but also safer to store. You can store your Gold in a precious metals IRA and have a good night’s sleep without worrying about someone who is continents away stealing it from their computer. Gold in an IRA is protected by a custodian who manages your account and ensures that your investment is safe.
Gold accounts are also insured to a given amount, so in case anything happens, you can always recover your investment. On the other hand, Bitcoin is unregulated, and you are solely in charge of your wallet. So, if you lose your investment, there is very little you can do about it.
Drawbacks Of Gold Investment
Like any other investment option, Gold has a few drawbacks that make it a less appealing way of investing. These include the fact that it can’t be used as a currency per se, and the risks that come with physically storing something that is highly valuable.
Below are some reasons why you might want to rethink before investing in Gold.
It Can’t Be Used as a Currency
Gold is not a viable means of buying goods. In a traditional setting, you can’t walk into a store and give out gold bullion in exchange for a refrigerator. That is more like barter trade which we have long outgrown.
So, in order to use Gold for a transaction, you will first need to sell it for money which can be a long process. On the other hand, some major retailers and financial services are now accepting Bitcoin as an alternative to fiat currencies. This means that you don’t have to sell your Bitcoin when you need to buy something.
Risky When You Store it Yourself
Gold is generally very safe when stored in a precious metals IRA. However, if you decide to bypass storage fees and store it yourself, you risk losing it to theft or some natural calamity.
Being a highly valuable metal, when the wrong people get to know that you are storing Gold in your house, it is not only risky for your investment, but also a danger to your life.
When To Invest In Bitcoin
The ability to use it as a currency, buy and sell easily, and higher profitability makes Bitcoin a better investment than Gold.
Below are some of the instances when investing in Bitcoin is better than investing in Gold.
When You Prefer a Digital Asset Investment
If you would rather skip the hassle and risks of storing a valuable physical asset, then you should choose Bitcoin over Gold. Unlike Gold, you can store bitcoin in your own wallet without having to pay anyone commissions to oversee it for you.
Being digital, you can access your Bitcoin anywhere when you need it. You don’t have to go back to your house safe or talk with your account manager when you need access to your Bitcoin. You can easily store it in your phone or a physical drive which you can carry anywhere you go.
When You Need More Control Over Your Investment
The gold market is highly regulated; you can’t just buy and sell Gold whenever you feel like it. While this is good for mitigating risks, it also means that you have less control over your investment. For example, in the US, the IRS recognizes Gold as a collectable. So, if you hold it for more than a year, you will have to pay up to a 28% capital gains tax.
On the other hand, the cryptocurrency market is unregulated. You decide when to buy, how much you want to buy, and how long you want to hold without attracting any fees or penalties.
When You Need an Asset That is Easy to Buy and Sell
Being a digital asset, you can easily transfer Bitcoin to another person and be paid for its value in fiat currencies. It is anonymous, so you don’t have to physically meet or even know the person you are selling to.
On the other hand, gold transactions are usually done face to face. This takes time and might not be ideal in an emergency situation.
When You Need an Investment With a Great Potential for Growth
Unlike Gold which has been around for centuries, Bitcoin is relatively new. This means that it is an emerging investment opportunity with a lot of room for growth. Based on the current momentum and industry predictions, Bitcoin is expected to exponentially increase its value in the coming years.
Investors are more likely to get bigger payoffs in the future. While gold value is also rising, it is a bit slow and offers fewer profits compared to Bitcoin.
Crypto asset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.
Drawbacks Of Bitcoin Investment
From its volatility to the fact that it is vulnerable to cyber fraud, there are a few reasons why Bitcoin investment might not be good enough.
Below are some of the reasons:
It is Highly Volatile
This is perhaps the biggest reason why budding investors will take a pause when it comes to investing in Bitcoin. The cryptocurrency market is highly speculative and very hard to predict. It is as easy to lose money as it is to double it overnight.
The huge price fluctuations might wipe away your entire investment and put you in an unimaginable financial strain.
Vulnerable to Cyber Crimes
Like anything else done online these days, Bitcoin can easily be used by scammers to mislead new investors and steal from them. Online wallets can also be hacked, and you might lose your investment to hackers.
On the other hand, cold wallets such as a hard drive can also be stolen from your possession, or you could lose them.
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Crypto asset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.
Conclusion: So, Should You Invest In Gold Or Bitcoin?
Honestly, there is not an absolute answer to this question. Investors have different goals, needs, and preferences. While some don’t mind risks with the possibilities of huge payouts, others are risk-averse and would rather choose a less risky asset with smaller profits.
Gold is stable, less risky, less volatile, and a proven safe haven for investors. However, it has low growth potential and is not good for short-term gains.
On the other hand, Bitcoin is highly versatile and risky. However, it promises huge profits within a short time. It is also growing exponentially and might soon become a globally accepted form of payment.
While both Bitcoin and gold have attractive features, gold is less risky investment for the long term. The price of gold is less volatile than that of Bitcoin. Meanwhile, Bitcoin is more speculative and has a stronger relationship to growth investors. The key advantages of Bitcoin is that it’s much growing than gold and it could offer you more returns.
Take some time and keenly analyze which of these assets deserve a spot in your investment portfolio. Even better, you can decide to give each a trial and see which one satisfies your investment needs better.
Crypto asset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.