Gold vs. Bitcoin: Which Investment is Right for You?
Both gold and Bitcoin (BTC) have unique places in the world of investing. Gold is mostly used in jewelry and some specialized electronics, while Bitcoin has little practical use. Despite this, investors still buy them as alternatives to fiat currency. In 2024, both gold and Bitcoin reached new price highs. But which is better to invest in? Let’s explore this topic.
Why Invest in Gold or Bitcoin?
This is a good question. Both gold and Bitcoin hold unusual positions in today’s economy. The gold standard was essential for global finances from the 1870s to the 1920s, and gold was used as currency for thousands of years. Yet, you won’t see anyone paying with gold today.
Bitcoin, on the other hand, is a newer asset that aims to replace the current financial system, which is heavily controlled by central banks and governments. Even though more vendors are accepting Bitcoin, most of the world still uses fiat currencies for transactions.
Surprisingly, both assets are in high demand. In May 2024, gold reached nearly $2,441, and in March 2024, Bitcoin exceeded $73,000.
Gold and Bitcoin as Inflation Hedges
Gold is known for performing well during economic downturns. Historically, it has been a store of value. When the economy is in trouble, investors move from stocks to gold, driving up its demand and price. When the economy recovers, demand for gold decreases as investors return to stocks, creating an “inverse” relationship.
Bitcoin, though much younger, also shows this “inverse” relationship. Its supply is limited, and it becomes more attractive when traditional assets decline. During the COVID-19 pandemic, Bitcoin’s price soared, peaking in November 2021.
Comparing Gold and Bitcoin
It might seem unfair to compare a commodity as old as civilization with a digital currency that gained popularity only a few years ago. However, understanding their differences can help us decide which one might be a better investment.
Price Stability
Gold has had thousands of years to stabilize its price. Bitcoin, however, is known for its high price volatility. Over the last ten years, gold has provided an average annual return of 6% with a relatively steady performance.
Bitcoin, in the same period, has delivered an average annual return of 63.3%, but its price has fluctuated wildly with significant ups and downs.
Safety and Regulations
Gold is a well-established asset that cannot be counterfeited and is typically stored in secure locations like banks. However, storing physical gold can be a security concern.
Bitcoin is also hard to counterfeit due to its blockchain technology. It’s decentralized, making transactions easier, but it lacks regulatory oversight to ensure user safety and prevent illegal activities. Bitcoin is best stored in dedicated crypto wallets.
Use and Application
Gold has limited uses outside of jewelry and some specialized electronics. Its demand is primarily for value storage and as a hedge against inflation, and its price is not influenced by economic cycles.
Bitcoin also has limited practical uses. Currently, it is mainly used for speculative investment and as a digital currency. However, emerging technologies might increase its utility, especially in fintech and decentralized finance (DeFi). Until these technologies are fully developed, Bitcoin will likely remain in its current role.
Conclusion: Which is Better to Invest In?
Gold’s historical role makes it a reliable store of value and an effective hedge against inflation. Bitcoin, however, needs more time to reduce its volatility and build trust among investors.
Bitcoin’s price volatility provides opportunities for significant price increases. Over the past decade, it has offered substantial returns on average. However, past performance is not a reliable indicator of future results.
Experts advise limiting gold investments to 10% of a portfolio’s total value. The same advice can apply to Bitcoin investments.
In the long run, stocks, especially the S&P 500 index, are considered better hedges against inflation compared to gold or Bitcoin. This might remain true until cryptocurrencies prove themselves over a few more decades.
Disclaimer: This content should not be considered investment advice. Investing is speculative, and your capital is at risk.
