Bitcoin is often treated as a modern-day equivalent to gold, sometimes even being dubbed as “digital gold”. But how true is this notion when it comes to trading and investments? Let’s map out some of the similarities and differences between Bitcoin and gold, and take a look at whether it is fair to make this comparison.

Brief Overview of Bitcoin And Gold as Investment Assets

Gold has been treated as a solid investment for millennia, with many people from a wide array of locations, cultures, and eras using it as a store of value. Its legacy over the years has also meant that investors in the current day tend to use it as a hedge against inflation, meaning that they believe the price of gold will not deteriorate in the same way that fiat does.

While the price of gold fluctuates over time, much like any asset, it typically moves slower than fiat, and its scarcity means it usually appreciates in value given enough time. With this in mind, people tend to view it as a long-term hold, as it can take some time for gold’s worth to get priced in.

Bitcoin shares some similarities to gold from an investment perspective, but with one massive caveat: BTC has only existed for around 15 years. Gold, on the other hand, is one of the most ancient investments in human history. Therefore, we know much more about how the gold market functions, leading to it having some of the most reliable technical analyses in the trading world.

Nevertheless, the two share some features. For instance, people also tend to view Bitcoin as a hedge against inflation, much like gold. This means it is used by many as a store of value. It is also considered to be a long-term hold, as traders believe Bitcoin’s value will often continue to grow over time. The big difference is that BTC is chronically volatile in comparison to gold, which has cooler and more metered market movements.

Gold vs Bitcoin: Historical Performance

One of the best ways to compare these two assets is to visualize their performance over a span of time. We can track this by using historical data from the entirety of Bitcoin’s existence, matched with gold. This chart monitors the price of BTC per ounce of gold, as well as the fluctuation in value from investing $1 in gold, vs $1 in Bitcoin.

As you could likely expect, the results are staggering, with Bitcoin significantly outperforming gold as an investment choice. It seems that in every metric found on this chart, Bitcoin comes out more impressively. However, there are some important elements to consider, which actually get to the heart of why it is so hard to compare these two assets.

For starters, gold has existed for a significantly longer time, and so it is nowhere near as volatile as Bitcoin. Not only is it one of the most researched assets of our time, but it is a commonplace investment globally. While people may enjoy the benefits of a volatile BTC, gold is offering something very different: steady rises and predictability.

It is easy to look back at historical data and say that one asset is a better investment than the other, but the reality is that we never really know how an asset will move over time. In the past, Bitcoin’s success was not clear, and many people rightfully were weary of it due to how new it was. While it does not look like it from historical data, a Bitcoin investment in the past was more of a risk than gold.

With that being said, it is also undeniable that Bitcoin appears to offer major opportunities to grow your wealth. This has definitely been the case in the past, although it is worth keeping in mind that the future is never guaranteed to follow the same patterns or trendlines as the past. Bitcoin is still a risk, just as it was years ago, although there definitely appears to be a strong case for investing in it over gold.

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Bitcoin Vs Gold: The Key Differences

The best way to contextualize this discussion is to look at the main differences between gold and Bitcoin. A couple were mentioned above, but we’ll unpack them properly now.

Volatility

Bitcoin is a remarkably volatile asset. Not only does it fluctuate regularly, but its movements are dramatic and sharp, especially in comparison to gold. Two big reasons for this is that Bitcoin is a new asset, and so its novelty means there is significantly less data and analytics out there to offer predictive markers. Therefore, even the most well-versed of traders will make decisions where they are not fully informed. 

The second major reason is that Bitcoin is made up of a huge percentage of retail traders, meaning people who trade individually, with lower amounts, and often without a formal education in Economics. In many ways, this is the intended audience for Bitcoin, as it was always designed to be an asset that was used by the average individual (rather than by corporations). Nevertheless, the influx of retail traders means that technical analysis is less meaningful, as many investors will not know how to read the charts or follow best practices anyway. Part of the reason why technical analysis works with assets like gold is not just because of the sheer historical data, but because many investors are also trained to follow the patterns, creating a type of self-fulfilling prophecy. Bitcoin, however, does not have that.

Risk

Bitcoin will always be perceived as a riskier asset than gold. It is a new asset that functions very differently from any of its predecessors, and so there is a level of risk that is interwovent. That being said, Bitcoin’s risk has mitigated over time, as it further cements its place in the financial world. Of course, gold does not carry the same risk profile, due to its age and legacy adding to its stability.

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Regulations

Gold's long history means that most countries have a good regulatory framework set up. Not only do governments know how to navigate it, but investors also have clarity when it comes to what they can and cannot do. Bitcoin, on the other hand, does not have this. Regulatory frameworks are not set in stone just yet, and many governments are still etching out their rules and guidelines regarding it. This can lead to uncertainty which affects price, adding to volatility and leaving people anxious. 

The Advantages and Disadvantages of Gold

Let's break down a few of the pros and cons of gold, from an investment perspective. 

Advantages of Gold

Historical data adds to technical analysis

There is a wide array of historical data available for gold, which investors can call upon when they are making decisions. This is tremendously helpful when trying to perform technical analysis, as we have decades of information to influence decision-making. 

Gold is less volatile than Bitcoin

Gold does not fluctuate with the same sharpness and unpredictability as Bitcoin. That does not mean it never has surprising spikes and dips, but it moves in an undeniably less outlandish way. For people who prefer more stability, this could be a good option. 

Gold is more regulated

As mentioned, gold has stronger regulatory frameworks. This helps add to its stability, and further means that it can be accessed by a wide array of official channels. 

Disadvantages of Gold

Let's now see what the drawbacks are of investing in gold. 

Gold's price moves slowly

While gold is considered a good investment for hedging against fiat inflation, this is much more the case when it comes to long-term holding. In the short-term, gold tends to be a relatively slow-moving asset. If you are somebody who is looking for an asset with more steep swings, then gold might not be the right choice for you. 

Gold has high transaction costs

Gold can be costly to transact and trade with. There are several reasons for this, but one of the biggest is that it is a physical and tangible asset, and so handling and security fees must be paid.

Tax is subject to higher taxes in some jurisdictions

One of the downsides of a highly established and regulated market is that there can be more rules and restrictions in place for them. For instance, for many regions you can be taxed higher on gold than on many other assets. Of course, this is not the case everywhere, and so it is good to research your own jurisdiction to see whether this is true. 

Advantages and Disadvantages of Bitcoin

Now that we have assessed gold, let's give the same treatment to Bitcoin and see how it fairs. 

Advantages of Bitcoin

Like with gold, we'll begin with Bitcoin's advantages.

Bitcoin has risen sharply over its lifetime

Despite Bitcoin existing for less than two decades, it has risen to an extremely high degree over its lifespan. From being worth practically nothing to $70,000 is deeply impressive, regardless of what metric you use. And the fact that many well-respected speculators and analysts believe that Bitcoin could go higher is extremely enticing. You just don’t get this type of upward movement with gold.

Bitcoin is more accessible

Bitcoin is designed in a way that allows anybody to use it even if they are not registered at a specific trading site. This means it has a low barrier of entry. Bitcoin was built in a way that promotes the average individual from partaking, as it was meant to be an alternative to the typical status quo of the financial world. Plus, with the fact that Bitcoin ETFs have now been approved by the SEC, BTC is even more accessible as it can be found on stock exchanges.

You can earn more with BTC savings accounts

As Bitcoin is used as an unit of exchange, as well as an asset, that means you can earn interest on it by placing it in a savings account. While this is theoretically possible with gold, as it has a long history of being a currency as well, it is rarely used like this nowadays and so you will struggle to find this as an option. The fact that Bitcoin can be used to generate interest gives you an additional revenue stream, and can help to increase its worth. If this sounds like a good idea to you, then be sure to take a look at Ledn’s Growth Accounts, where you can currently earn up to 3% APY on your Bitcoin.

Disadvantages of Bitcoin

Of course, just like gold, Bitcoin also has its faults. These are three of its greatest.

Bitcoin is unpredictable

Bitcoin’s short lifespan, huge demographic of retail investors, and the fact that its asset class uses relatively novel technology means that is extremely hard to predict how it will behave in the market. Even commonplace questions like whether Bitcoin moves synchronously with the rest of the financial world do not have simple answers. Many of us are in the dark when it comes to making fair guesses about it. This is no doubt going to put people off from investing.

We do not know whether Bitcoin is futureproof

Gold’s unfathomably long and intimate history with human existence helps to cement its place in our world. It is an asset that has been revered for millennia. Bitcoin, on the other hand, cannot hold a candle to this type of legacy. In fact, there is a constant debate surrounding whether Bitcoin is already outdated and redundant, despite only existing for less than two decades. While BTC has the most name recognition out of all cryptocurrencies on the market, and is currently worth the most, there are many contenders out there who are trying to dethrone it. And there is nobody who can say with certainty whether this will happen or not. Some assets are faster, more eco-friendly, cheaper to transact with, and more versatile than Bitcoin. For this reason, there are investors who avoid BTC, purely because they envisage its downfall in recent years. Again, that does not mean it will happen with any level of surety, but it is a worthwhile perspective to consider.

Bitcoin regulations are still being created

As mentioned earlier, governments and regulatory bodies are still building financial frameworks related to Bitcoin. This means that its legal status and rules are in flux, as there are many debates taking place globally about how to treat it. These can (and have in the past) affected Bitcoin’s price, leading to increased volatility due to the uncertainty. Not only this, but for some nations there is always the looming possibility that Bitcoin could get banned, which would affect many of the traders in that region. Thankfully, the decentralized nature of Bitcoin means that there will still be ways to trade it, but even with this possibility, you should always adhere to the laws of your region, for the sake of your own integrity.

Bitcoin Vs Gold as a Hedge Against Inflation

The debate around Bitcoin vs gold often touches on the idea of avoiding fiat inflation. Both are used as hedges, and have many fans for this reason. There is sadly no definitive answer as to which is better, but what we can say is that gold has been used as a hedge for significantly longer, and so its reliability and legacy is on its side. However, Bitcoin has shot up in value over its short lifespan far more significantly than gold has, making it the more lucrative investment in the past. But remember that former performance will never give a clear picture of future movements, so neither can guarantee success.

One way we could tackle this topic is by considering what exactly hedging is, and whether one is more suited to it than the other. When people think about hedging against inflation, they are not just asking about whether an asset will be more valuable over time, but rather they are asking if it will hold its value with more stability. Through this lens, gold appears to be a prime choice, due to its steady price increases. Bitcoin, on the other hand, rises and falls more sharply. Some may view this as detrimental, especially if they are looking to hedge against inflation as a way of avoiding volatility. However, it really comes down to whether you want a more stable hedge (gold), or an option that may lead to more gains over time (Bitcoin).

Is Bitcoin a Better Investment Than Gold?

Bitcoin’s history suggests it is a better investment as it has risen so tremendously over just a few years. However, just because it has skyrocketed so much does not mean it will always do so. We do not know what Bitcoin’s ceiling is, and so it may one day simply stop setting new all-time highs.

In some ways, we do not know gold’s ceiling, either. The gold market has undergone many changes over the centuries, and as its utilities shift and people’s perspectives on it alter, so will its price. For instance, the demand for gold increased when the electronics market grew, as it is used as a corrosion-resistant conductor. 

If in the future, gold’s utilities expand into something else, then it could lead to even further spikes. And if this was to happen around the time that Bitcoin was losing its grip on the number-1 spot in the crypto space (perhaps due to newer cryptocurrencies overtaking it), then gold could be considered a better investment. However, this is a speculative discussion on future-gazing, and so no concrete answers can be derived.

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Make The Most Of Your Bitcoin Investment With Ledn

If you choose to hold in Bitcoin over gold, then you should consider placing it in a savings account, so that it can build interest over time. This is especially the case if you plan to hold onto it for some time. One of the best options for generating BTC interest is with Ledn’s Growth accounts. These are savings accounts that allow you to accrue Bitcoin with enhanced safeguards, currently at up to 3% APY. Doing so helps to not only give you a means of diversification but also to offset some of the volatility inherent within Bitcoin, by adding additional money to your portfolio.

Conclusion

The debate around gold vs Bitcoin has existed for almost a decade now, and it looks very unlikely to fade away any time soon. It is a complex topic with many elements, making it hard to draw definitive conclusions. Your best option is to research these assets as much as possible, and then decide which one suits your needs the most.

If you choose the Bitcoin route, be sure to look into Ledn’s Growth Accounts, so you can potentially generate interest with any BTC that you plan to hold onto for a sizeable period of time. These gains can go a long way towards adding more financial stability to your holding strategy.

This article is sponsored by 21 Technologies Inc. and/or its subsidiaries (“Ledn”) and is for general information, discussion, or educational purposes only and is not to be construed or relied upon as constituting legal, financial, investment, accounting, tax, estate-planning, or other professional advice or recommendation. Past performance is not a guarantee of future results. Please read Ledn’s full Risk Disclosure Statement and Disclaimers.