Investors around the world are becoming increasingly worried about the effects of the Covid-19 pandemic on the global economy. As the inflation raises, many people are comparing bitcoin and gold to find out which of the two is a better store of value, and which is better at fulfilling the role of a safe-haven asset serving as a hedge against economic uncertainty. In this article, you will find an in-depth comparison between bitcoin and gold, and an explanation of why so many investors trying to decide whether bitcoin or gold is better lean towards BTC.
To understand how bitcoin could compete with gold, it’s essential to understand how exactly did the precious metal become the go-to safe-haven asset it is today. The history of gold is of course as old as the history of civilization itself, but gold’s role not as a consumer good but as an investment intended precisely to serve as a hedge against inflation and economic uncertainty is relatively new.
For most of the 20th-century gold remained at a stable and relatively low price. Up until the 1970s, for decades an ounce of gold was being traded in the range of $20-$35. Ten years later, in 1980, gold reached $650, which means that over a very short period of time the price of gold increased by 1,850%.
The 1970s were a tough era for the free world: America was losing the Vietnam War, inflation was raging, the oil price was unstable and the dollar was weak. All this combined together created an atmosphere of immense economic uncertainty which made people desperate to find a safe-haven asset that could protect their funds – and that’s how gold was reinvented as a secure store of value.
In times of crisis fiat currencies often lose value, and people begin to look for more secure ways to store their wealth. Nowadays, as the effects of the Covid-19 pandemic are expected to take a massive toll on the global economy and the fiat currency system as a whole, investors are starting to pay increased attention to bitcoin, wondering if perhaps it could be an even better safe-haven asset than gold.
Gold vs Bitcoin as a Store of Value: Similarities
There’s absolutely no denying that gold is an excellent store of value. Ever since people realized that investing in gold is a phenomenal method of preventing their life savings from being devoured by inflation, the price of gold never stopped increasing: in fact, gold has reached its new all-time-high of over $1,900 per ounce very recently. But what exactly is the reason for this unwavering popularity of the precious metal?
Gold and bitcoin share an attribute which is the number one reason for gold’s success. Both bitcoin and gold are deflationary, which means that the supply of them is limited. Politicians and bankers can create fiat currency out of thin air just by printing more money whenever they feel like that, but they can’t magically produce gold, and therefore they can’t devalue it. It’s exactly the same with bitcoin: BTC has a limited supply of 21,000,000 coins, and nobody in the world can create even a single bitcoin over that limit.
It is a fact that more gold and more bitcoin are still being introduced to the market: after all, both gold and bitcoin are constantly being mined. But unlike printing fiat currency, mining gold, just as mining BTC, takes effort, time, and energy, so it doesn’t lower the value of the asset. The more gold is mined, the less unmined gold remains. It’s the same with bitcoin: according to estimates, the last bitcoin will be mined in 2140.
Because of their deflationary nature, assets like bitcoin and gold are a perfect hedge against inflation. Everyone is familiar with spectacular cases of hyperinflation such as those in Venezuela and Zimbabwe, but even a small rate of inflation still means that the money people keep in their bank accounts is slowly but steadily being eaten away. With bitcoin and gold, the negative effect of inflation on people’s life savings can be overcome.
For many people, buying gold or bitcoin is a precaution against economic uncertainty. Simply put, investing in BTC or gold protects your money from losing value due to bad decisions made by politicians and central banks. It’s obvious why comparisons between bitcoin and gold are becoming increasingly common. Gold and BTC are similar and can serve a similar purpose. But there are also differences, and these differences are what makes so many people think that bitcoin might be a better store of value than gold.
Gold vs Bitcoin a Store of Value: Differences
The biggest difference between gold and bitcoin is also bitcoin’s main advantage over gold: portability. One million dollars stored in gold weighs about 33lbs (15kg), and one million dollars stored in bitcoin weighs nothing as it doesn’t even exist physically, but only as information saved on a decentralized blockchain.
Just storing that much gold would be very problematic, but real troubles would arise if you had to move it over large distances, or do a cross-border transfer. The cost and time of moving that much gold from point A to point B would be massive, and there would always be a great risk of the precious metal getting stolen during the process.
On the other hand, hundreds of millions of dollars worth of bitcoin can be moved between countries and continents extremely quickly and with relatively small fees. The entire process is also much more secure than moving gold from place to place, as the advanced cryptographic algorithms protecting assets stored on the blockchain are better than even the most expensive and sophisticated safe. There’s no denying that bitcoin is not only much more convenient but also much more safe – BTC simply is a much better store of value than gold.
The Covid-19 pandemic and the resulting economic aftermath has caused many people to look for the best store of value available, and in the past few months experts have been increasingly enthusiastic about bitcoin being a safe-haven asset superior to gold. Raoul Pal, a former hedge fund manager at Goldman Sachs, recently declared that he owns both bitcoin and gold, however, he owns much more BTC than gold, because he believes that “Gold can go up 2x or 3x or even 5x while bitcoin can go up 50x or even 100x.”
Popular author and entrepreneur Jeff Booth recently commented that although in periods of peace and stability both gold and bitcoin are phenomenal deflationary assets, in times of social and economic turmoil the advantages of BTC become extremely important, as do all the disadvantages of gold. Booth believes that bitcoin is much better than gold because while gold can be stolen or confiscated, “the portability alone of bitcoin for safety reasons becomes paramount”.
Although most experts are not advising against owning gold, a growing number of experts believe that because BTC is more portable and more secure than gold, bitcoin will ultimately prove itself to be a far superior safe-haven asset. Perhaps it was summed up best by the Citibank executive, David Fitzpatrick: “Gold has restrictions such as storage, non-portable, and could possibly be even called ‘yesterday’s news’ in terms of a financial hedge. Bitcoin is the new gold”.
There’s absolutely no denying that gold has been an outstanding asset, consistently performing incredibly well for over 50 years. The precious metal has an innate value and even the most passionate bitcoin enthusiasts are not suggesting that the gold market will crash, or that gold will suddenly start losing value.
However, if we rationally analyze and compare bitcoin and gold, the advantages of the digital asset become obvious. Bitcoin is much easier, safer, and cheaper to store and transfer while having the same deflationary qualities as gold thanks to its limited supply. The differences become more prominent as the amount of funds grows – while small amounts of gold are still relatively easy to store, problems arise if the amount becomes large.
With bitcoin, the amount of funds secured on the blockchain is irrelevant, as storing and transferring $1,000,000 is exactly as easy as storing and transferring $10. Perhaps it’s one of the reasons for the increasing demand for bitcoin among institutional investors, who often acquire hundreds of millions of dollars worth of cryptocurrency in a single purchase.
Will bitcoin replace gold? It is unlikely that gold will lose its popularity in the near future, but it might lose its status as the go-to safe-haven asset. More and more people are starting to realize the immense potential of bitcoin as a store of value, as the advantages of bitcoin when it comes to security and portability are undeniable.
For the time being, bitcoin and gold are peacefully coexisting. Most investors focused on creating a resilient portfolio own both bitcoin and gold, but it’s worth noting that the number of people who own more BTC than gold keeps growing. And it’s for a good reason: in times of crisis and economic turmoil, bitcoin is simply a much better safe-haven asset than gold.