In the ever-shifting landscape of wealth preservation, many investors are wondering if they should pick the enduring brilliance of gold or embrace the digital revolution with Bitcoin. Bitcoin vs Gold? It’s a question that’s perplexed traditional investors and intrigued newcomers alike, so let’s take a deep dive into the two asset classes.
Contents
Bitcoin, Not Crypto
To begin with it should be clear that this entire crypto vs gold debate is solely about Bitcoin, not any other digital currency or digital assets. When other experts compare bitcoin with gold, they often lump Bitcoin and all other cryptocurrencies together which is obviously wrong to do. Bitcoin is for numerous reasons not like any other digital currency and should never be compared to anything else in the broader cryptocurrency market.
Secondly, we’re also assuming that investors:
- Take full custody of their coins and hold their own Private Keys
- Use a well regarded hardware Crypto Wallet
Many objections about Bitcoin are founded in the assumption that the investor is keeping their bitcoin on some random exchange that will get hacked (which it will). While this is something that does happen to investors, it’s akin to saying gold is insecure because you left a bar of it on your car seat and someone stole it.
Bitcoin
Bitcoin is the first and most globally recognized cryptocurrency. It is a free, fully open source, decentralized and entirely digital currency for all. It enables instant payments via blockchain technology that’s free for anyone, anywhere in the world to use at any time. It uses peer-to-peer technology (like torrents) and can be used without any permission from a government or central authority.
It cannot be stopped or censored. Its rules cannot be changed, no matter how rich or powerful a country or person is and it’s the only asset in the history of humanity to have a truly finite supply. While it’s had a reputation for being a speculative investment, it’s quickly gaining traction among the global economy as a way to hedge against central banks.
Created by cryptographers (Cypherpunks technically) to cure the money problems caused by big governments and big banks it joins their other world changing technologies such as encryption of the Internet, encrypted messaging and the Tor project.
Gold
Historically, people have used many different physical items as Stores Of Value such as seashells, tulips or Rai stones, but throughout all of it the most enduring form of money has been gold. Today people use multiple different things to store their accumulated life value, but gold demand has stayed strong and relatively consistent through hundreds of years thanks to the inherent properties of the gold element and its use in jewelry and lately, computer components.
Historically, gold investment has performed well during bear markets as it holds steady while other assets like stocks go down in value. This is usually because investors will move from stocks to gold before a recession, increasing the demand and thus price.
Golds ability to hedge against other asset classes like the stock market makes for a popular investment strategy with both assets forming an important part of many investors portfolios. The World Gold Council estimates that gold’s market cap is around $16 trillion.
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Intrinsic Value
A lot of experts state that a gold bar is better than bitcoin because it has intrinsic value or a “dual nature”. That is, gold isn’t just used as a store of value, it’s also used in other things such as jewelry, computer hardware and also importantly, religious and traditional aspects.
These other use cases for the store of value means that the demand for it remains consistent over hundreds of years and keeps its underlying value higher. While this is undoubtedly true, they miss two key points.
First is that Bitcoin also has many use cases besides being a good store of value. For example, it can be used to send value across any distance, through any border, instantly and without anyone’s permission. It’s control is beyond the reach of any government or persons.
It can be used to transact privately and anonymously online. It can be used as a bank account for those without ID or who are being oppressed. These use cases are life saving to billions of people around the world.
Secondly they miss the fact that something isn’t a good store of value because it has other use cases. You can choose anything to be “money” like a rock or a cow. Whether or not it’s considered as a good type of money and then a good store of value depends on how well it hits two specific characteristics.
- Scarcity: Limited in supply relative to other things
- Durability: Can be used many times and still function, stands the test of time
If something, anything, is truly scarce and durable it will naturally be a good store of value regardless of its other use cases. Bitcoin is more scarce than gold (absolute fixed supply of 21 million vs slowly growing supply) and infinitely durable as it’s digital and thus can be used forever without degradation.
| Fiat | Bitcoin | Gold | |
|---|---|---|---|
| Scarcity | Low | High | Medium |
| Durability | Medium | High | High |
Never before has human kind had such a perfect money available, let alone available to everyone, equally, all over the globe!
Gold Vs Bitcoin: Key Differences
When analyzing these two assets there’s a number of key features that investors need to be aware of. From their market downturns to their liquidity, to volatility and scarcity they are two very different beasts. To give the best information we’ll be sticking to factual, quantitative information as much as possible and covering the following points.
| Bitcoin | Gold | |
|---|---|---|
| Scarcity | First truly scarce asset in human history. No more that 21 million bitcoin will ever be minted | Current total supply is unknown, estimated to be 200,000-300,000 tons but could be infinite and is growing at ~1.5% per year |
| Durability | Infinitely durable as bitcoins are digital. Seed phrase can be engraved in any material and have infinite redundancy if desired | Very good durability with high melting point and long lasting without decay or spoilage |
| Liquidity | Millions of vendors all around the world accept and exchange bitcoin into virtually any other currency or good. Can have liquidity issues when exchanging very large amounts such as over 100 BTC | Millions of vendors all around the world accept and exchange gold into virtually any other currency or good. Liquidity available for virtually any amount |
| Volatility | Over the past 5 years (2018-2022) bitcoin has seen increases of up to 298% with decreases of up to -73% | Over the past 5 years (2018-2022) gold has seen increases of up to 24% with decreases of up to -3.5% |
| Regulation | Depends on the country. Can be completely banned such as in Qatar or fully legal tender such as in El Salvador. Regardless of any regulations, bitcoin cannot be stopped due to its decentralized and censorship resistant network | Depends on the country. While there are some restrictions, gold regulations are well developed and clear in most countries |
| Storage | Requires inexpensive ($60-$200) hardware wallet to store securely. This cost is the same regardless of how much bitcoin you store | Requires costly safes or third party vaults to house it and prevent theft. These costs increase as more gold is stored |
| Verification | Full bitcoin supply is always known and publicly visible at any time. Individually owned bitcoin supply is easily and cheaply verifiable with no trusted third parties required by running a Bitcoin Full Node | Full gold supply is unknown and unverifiable. Individual gold is costly to properly verify and requires giving your gold to and trusting a third party for that verfication |
Scarcity
While the limited supply of gold has made it one of the best stores of value and a good inflation hedge for hundreds of years Bitcoin greatly improves on it. This is because over time, technology advancements often turn a scarce stable asset into one that can be made in essentially unlimited quantities.
For example Aluminum used to be more expensive and rare than gold up until the late 1800s. This was because after that time efficient chemical and electrical processes allowed for the cheap separation from its bauxite ore in which it naturally occurs.
While gold is still very difficult to find and mine in the earths crust, meaning it’s scarce, it’s quite possible that technology will soon unlock larger quantities just like making perfect diamonds cheaply is now done. Bitcoin on the other hand has a total supply cap of 21 million bitcoin that will never change.
The next Bitcoin Halving will also halve the block reward from 3.125 bitcoins per block down to 1.5625, which will reduce its inflation rate to around 0.0.41% p.a. Over the past decade about 3,000-3,500 tonnes of gold has been mined each year representing an inflation rate of around 1.5%.
Is Gold Really More Durable Than Bitcoin?
No. While the yellow metal has excellent durability which has served it well over the years, bitcoin is digital, which means it will never degrade over time. Further more, you can engrave your seed phrase (the 12 or 24 words) into any material you wish, including gold.
As great as gold is, there are far more durable metals out there such as titanium or aerospace grade stainless steel – that’s resistant to fire, water, acids, and impacts – that can be used. You can also make multiple copies of your private keys and have incredible redundancy which makes it even more durable.
Liquidity
Gold’s market cap is much bigger than bitcoins, making it a more liquid asset. This can be a big concern for investors if they want to change investment strategies quickly as it requires being able to sell or buy large amounts in short periods of time.
While bitcoin is indeed a highly liquid asset that’s accepted by millions of vendors, individuals and exchanges all over the globe, there can be issues or time constraints when trying to buy or sell large amounts (10-100+ BTC) of it quickly.
On the flip side bitcoin can be traded at any time, anywhere, 24/7/365. The gold market is usually only open during business hours which is about 40 hours a week or only 24% of the time. As such, you can always trade bitcoin where as you will likely have to wait hours or even days to trade gold.
Volatility
As gold bullion has been around for hundreds of years it’s considered a relatively stable investment and safe haven during times of inflation. While it does go up and down, its swings are not as volatile as what’s seen with bitcoin.
One of the biggest drivers of volatility is an assets overall market cap size. Assets with a smaller market size are easier to influence as rich investors can effect the price with their buying and selling. As the market cap increases and the asset matures, it’s expected to see a decrease in volatility and that’s precisely what’s been seen with Bitcoin.
Raw data backs up this narrative too, with volatility steadily decreasing as time goes on as documented in a 2021 paper by Dirk G. Baur & Thomas Dimpfl. More recently we also saw Bitcoin actually become more stable than stocks!
Regulation
Gold has tried and true systems for weighing and trading gold bars thanks to its long history. It has well established and documented regulations in virtually every country and is very difficult to fake or steal. These regulations often prohibit the carrying of gold across country borders which can greatly limit your control over your asset.
Bitcoin has a set system enshrined in code that cannot be changed with literally every single satoshi (the smallest unit of bitcoin) being tracked and verified by tens of thousands of full nodes every 10 minutes with an Immutable, distributed ledger.
Different countries have different regulations ranging from completely banned to legal tender, but it’s impossible to stop someone from transacting with Bitcoin. These regulations are also often not defined as well as traditional assets as bitcoin is still so new. Both gold and bitcoin are usually subject to capital gains tax.
Storage
Storing of bitcoin is done by the Blockchain with access to this controlled by your private keys or seed phrase. Properly and securely storing your seed phrase can be easily done using a hardware Crypto Wallet with top tier ones costing as little as $60 USD. These can also store unlimited amounts of bitcoin on them without requiring any further investments.
Physical gold storage requires safes which start from a few hundred dollars. While this in itself isn’t too costly, it is more than what’s required to store bitcoin and more importantly it increases with the amount of gold you wish to store. More gold bars requires bigger, more expensive safes or incur higher costs when using trusted third parties to store it for you.
Verification
While many investors might not immediately concern themselves with verification it’s an important part of any investment. If you can’t verify that the asset you’re preserving wealth in is genuine then you’ve got a big problem.
Verifying the gold you’ve bought is real can be done, but it’s costly and you’re still required to place your trust in a third party. Unlike gold bitcoin can be verified using any computer by running your own Full Node. This device will also verify the entire bitcoin supply every 10 minutes on your behalf and ensure that any new bitcoin you receive is valid according to the network rules.
Bitcoin Vs Gold: Carry Costs
With no physical form, Bitcoin has significantly lower delivery, storage and transportation costs. With gold this can represent a major cost of holding the asset. When you buy gold, unless you’re purchasing something like gold ETFs, delivery is required. Bitcoin transactions also require a transaction fee, but these can be a few cents.
If you have a large amount of gold the transportation costs of it can be quite a lot too. From security guards to armored trucks, once again the more you have the higher the costs. Bitcoin represents a complete departure from this once again as you can send $5 or $5 billion dollars anywhere in the world for a few cents.
Is Bitcoin Better Than Gold?
While we’re obviously a bit biased towards bitcoin here, which one meets your investment goals best will depend on your risk tolerance, how much capital you have to deploy as well as many other variables.
While bitcoin has many factors in its favor over gold, it’s also a much more volatile investment with more risks when it comes to regulations. As such we’d recommend that you first see a qualified financial advisor before making your decision. The correct answer might be some alternative assets entirely!
FAQ
Is Bitcoin Safer Than Gold?
It depends. While both alternative investments allow you to take full custody of the asset, bitcoin is arguably harder to confiscate as you can protect it with a PIN or passphrase that you remember. Safe can also refer to volatility in an asset class in which case, gold is less volatile as it’s a much more mature asset class. Some also see gold as safer as it’s a more tangible asset that you can physically hold.
Is It Better To Invest In Bitcoin Or Precious Metals?
As no one is able to predict the future, it’s impossible to definitively say that one will be better or more profitable than the other. Both gold and bitcoin are regarded as being good at wealth preservation during times when governments print a lot of fiat currency. However you should see a financial advisor from a registered financial institution to properly determine which investment will be right for you.
Is Cryptocurrency Like The Gold Standard?
When a country is on a gold standard it means that its citizens measure all economic activity in gold. It’s their Unit Of Account just like the United States uses USD as their standard unit of monetary measurement. It’s also possible to run your life on a Bitcoin Standard, where you measure all goods and services with the unit of bitcoins or BTC.
