Gold vs. Bitcoin: An Overview
Analysts and amateur economists love to sound alarms over a looming recession. The Great Recession of the 2000s was followed a decade later by the COVID-19 recession, one of the shortest in history. The reoccurrence of recessions has renewed the interest investors have in making sure they lose as little as possible if a recession hits.
As an investor, you'd traditionally hold a portion of your portfolio in precious metals like gold. This provides a hedge against the losses stocks can take during a downward economic trend. This has proven effective and still is—but a new alternative is challenging this old-school capital preservation method. Bitcoin is proving to be an interesting asset for investors because it has been around long enough to gain recognition and support—it is being used in ways that appear to demonstrate a few trends.
Key Takeways
- 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 have used it successfully to store value and hedge against corrections and recessions.
- Which is a better investment depends on your risk tolerance, investing goals, strategy, and the amount of 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.
When the COVID-19 pandemic began to shut down economies worldwide in 2020, speculators and investors noticed that Bitcoin's value wasn't falling alongside stock values. They started pouring capital into it, institutional investors continued looking for ways to create investment instruments and funds from it, and its price soared—by April 2021, Bitcoin's price hit about $61,000 and peaked in November at $69,000 on Coinbase. It began a long decline, and after a long period of much lower prices, dubbed a "crypto winter," its price skyrocketed to more than $75,000 on March 14, 2024, after Bitcoin Spot ETFs were approved by the Securities and Exchange Commission.
Investors and speculators began to use Bitcoin in a buy-and-hold strategy as its price fluctuated wildly over 2021, hoping it would maintain value as the pandemic continued.
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 threatens. 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.
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.
| Bitcoin | Gold | |
| Regulations | Depends on the country | Some restrictions |
| Utility | The number of uses is growing | Used across many industries and products |
| Liquidity | Depends on the market and type of asset | Depends on market and type of asset |
| Volatility | Started 2021 at $32,782 rose, to a high of $69,000, closed the year at $46,306, dropped under $20,000 in late 2023, then hit $75,830 in March 2024. | Started 2021 at $1,943 an ounce, dropped to a yearly low of $1,683, ended year at $1,805. |
Regulation
Gold's established system for trading, weighing, and tracking is pristine. It's very hard to steal or fake; it's also highly regulated. In many countries, you cannot cross borders while carrying gold without regulatory permission. When investing in gold, you'll generally only be able to purchase it from registered dealers and brokers; one caveat is that you should only buy physical gold if you can safely store it.
Bitcoin is also difficult to steal and fake, thanks to its encrypted and decentralized system. It is generally legal to use across the borders of different countries, with a few exceptions. However, the regulatory infrastructure that could exist to ensure that users are safe is not yet in place in many countries—the pseudonymous nature of cryptocurrency also makes it challenging to regulate.
Utility
Gold has historically been used in many applications—currency, luxury items, specialized applications in dentistry, electronics, and much more. This cross-functional utility has given gold its ability to maintain value when other asset values fall.
Bitcoin is limited in its utility. It is currently only used as a digital currency and a speculative investment. However, there is an emerging financial technology whose concept is to use cryptocurrency for financial transactions called decentralized finance. Bitcoin has utility in this emerging tech as a form of lending, borrowing, and possibly more. It also has the potential to be involved in nearly as many applications as gold—but following the same line of thought, it has just as much potential to become useless and invaluable.
Liquidity
One primary concern for investors looking toward Bitcoin as a haven is its liquidity. The top few cryptocurrencies by market cap are generally very liquid assets because they have higher trading volumes and more capital invested in them; less popular cryptocurrencies are much less liquid. But there are limits to its liquidity depending on the platform you use.
If you're looking for an asset that you can quickly move in and out of without losing value in a short time (like Bitcoin can), gold might be a better option. However, stablecoins like Tether (USDT) maintain their value over short periods because fiat currency and other cash-like instruments are held in reserve. Many traders use USDT for this purpose.
For example, if you had several hundred Bitcoins on Coinbase, 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 $100,000 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 will drop dramatically in response.
Volatility
Bitcoin has historically proven to be subject to the media effect, investor sentiment, regulatory actions, and hype. News from the digital currency sphere could prompt investors to panic and make quick decisions, quickly sending Bitcoin's price upward or downward. This volatility is not inherent to gold for the reasons mentioned above, making it perhaps a safer asset.
In recent years, several alternative cryptocurrencies have been launched which aim to provide more stability than Bitcoin. These coins are called "stablecoins" because their prices are pegged to fiat currency or another stable asset. For instance, Tether is linked to the value of the U.S. dollar through reserves.
Is It Better to Buy Bitcoin or Gold?
Which you buy depends on your outlook and preferences.
Could Bitcoin Surpass Gold?
Regarding market price, Bitcoin has been much higher than gold for some time but is much more volatile. Gold has more use cases, while Bitcoin is limited to financial instruments and services only. Whether Bitcoin will replace gold is a subjective argument.
Can Bitcoin Really Replace Gold?
It's unlikely that all investors will replace gold with Bitcoin in their strategies. What's more likely to happen is that each will have a place in a portfolio based on preferences and risk tolerance.
The Bottom Line
Whether Bitcoin is a better investment than gold depends on your investment goals, enjoyment of speculating, risk tolerance, and how much capital you can stand to lose if the market turns. Each asset has benefits and drawbacks. A financial advisor can help you create investing goals and decide whether Bitcoin or gold is better for you.
The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our warranty and liability disclaimerfor more info. As of the date this article was written, the author owns BTC and XRP.
Article Sources
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SD Bullion. "Price of Gold in 2019."
SD Bullion. "Price of Gold in 2020."
SD Bullion. "Price of Gold in 2021."
U.S. Department of State, Bureau of Consular Affairs. "Customs and Restrictions."
Coinbase. "Deposit & Withdrawal Limits."
CoinMarketCap. "Top Stablecoin Tokens by Market Capitalization."
Tether. "Why Use Tether?"
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