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Bitcoin vs. Gold: How the Two Assets Compare

Bitcoin displayed over a piece of gold rock

Bitcoin’s volatile nature has provided investors with significant returns, and its growing popularity has prompted many to reconfigure their portfolios to include the predominant digital asset. Furthermore, some investors have argued that it is more lucrative to invest in Bitcoin than gold.

This way of thinking has sparked widespread debate to determine which asset is a superior store of value. Regardless of which asset investors prefer, Bitcoin and gold function, at their core, as currencies. Bitcoin’s peer-to-peer technology facilitates payments, and gold has throughout history been traded for goods and services.

While gold has been used as money for centuries, Bitcoin is often hailed as digital gold. Which asset comes out on top? In this article we’ll compare Bitcoin and gold as investments, exploring use cases, benefits, regulation, and the information investors need to make informed decisions about which asset aligns with their investment goals.

Understanding Bitcoin

Bitcoin is the first decentralized, blockchain-based digital currency, and was launched in January 2009. It operates on, and is the native asset of, the Bitcoin network, facilitating peer-to-peer transactions. Bitcoin’s unique features include a maximum circulating supply of 21 million coins and transactions verified by miners (and subsequently immutably confirmed), who solve complex mathematical problems to bring new coins into circulation.

The coin’s decentralized nature means that no institution or centralized entity controls it, nor can such groups interfere with its transactions. In other words, there is nothing to prevent willing parties from transacting, peer-to-peer, unobstructed.

Bitcoin’s volatility is one of its key attributes, historically enabling significant upside for investors. Its price action has resulted in dynamic bull runs, with investors earning returns of more than 1,000%, sometimes within several weeks. Bitcoin’s massive price spikes can be followed by crashes. It’s common for Bitcoin to lose up to 85% of its value during a bear market.

The expanding adoption of Bitcoin can be largely attributed to its accessibility. Investors can buy Bitcoin from major exchanges around the world from the comfort of their homes. Considering its infancy, Bitcoin is still largely unregulated in some, countries and is not yet allowed in others.  

Understanding Gold

Gold has functioned as currency for thousands of years, and was initially used to create jewelry and idols. Ancient Greeks used gold as money, exchangeable for goods and services. During World War II, developed economies relinquished gold’s role as a currency used daily to pay for goods and services.

The Gold Standard was a system that pegged the value of a country’s currency to a specified amount of redeemable gold. In 1971, the U.S. abandoned the Gold Standard, no longer converting dollars into gold at a fixed value.

In the present day, gold is used to make ornamental objects and wedding rings, and is also held as money (in the form of property or as an asset). Gold is considered a store of value, and many investors hold it in their retirement accounts as a hedge against inflation. 

Gold’s bull runs usually occur during economic downturns, and can last several years. While its price crashes aren’t typically as rapid as Bitcoin’s, gold has at times lost 80% of its value in a multi-year bear market. The exact gold supply is uncertain, but it is believed that nearly 209,000 tonnes of gold have been mined.

The trading of gold is regulated by federal agencies.    

Bitcoin vs. Gold: Inflation Hedge

Gold has proven during several inflationary periods that it can act as a hedge. Although gold’s value can increase during inflation, its returns are modest compared to Bitcoin’s rallies. Many investors bought Bitcoin in 2020 when the U.S. government printed trillions of dollars.

Those investors forecasted inflation, and the overwhelming demand resulted in Bitcoin rising in value by 1,400% until November 2021, reaching its all-time high of almost $69,000.

Gold’s value began increasing at the start of the global economic crisis in 2008. It provided investors with just over 158% returns from October 2008 to August 2011. Despite the strong run, gold’s current price is only marginally beyond its 2011 top. 

Bitcoin vs. Gold: Investment

Bitcoin’s short-term price action can be highly volatile, with price movements of 20% or more within days. As a long-term investment, Bitcoin has provided investors with returns of more than 1,000%. Bitcoin’s bull runs occurred in 2013, 2017, and 2021. Investors who bought Bitcoin in 2013 and held it until 2021 received 500,000% returns.

Gold’s price action is more stable than Bitcoin’s. Although gold can lose 80% of its value, its crashes take several years to reach the bottom. Gold’s short-term price action is usually stable, with percentage movements in the single digits. As a long-term investment, gold appreciated 639% from January 2001 until August 2020.

Investors can include Bitcoin and gold as part of their retirement investment in a 401(k) or an individual retirement account (IRA). 

Bitcoin vs. Gold: Accessibility 

Bitcoin is more accessible than gold in most countries due to its nature as a digital asset. Even if Bitcoin isn’t offered in a particular country, investors can gain access online buying from an exchange based anywhere in the world.

Since gold is a physical asset, investors looking to take possession of it will need to collect it or have it delivered. That poses a security risk, and may involve hefty fees for transportation. 

Bitcoin vs. Gold: Utility 

Gold has, throughout its long history, taken more forms than Bitcoin. It is used in jewelry, technology, and even aerospace engineering. Gold also has a track record of being used as money, while Bitcoin was more recently  designed as a currency and store of value. Many, however, see Bitcoin as more of a speculative asset.

Despite this, Bitcoin’s adoption as a payment method has grown significantly over time, with corporations such as Tesla, Microsoft, and Burger King accepting it for various transactions. It has also experienced strong adoption in some nations, and was officially deemed legal tender in El Salvador.

Bitcoin vs. Gold: Regulation

Gold is regulated by federal agencies. The U.S. Securities and Exchange Commission (SEC) only regulates gold investments such as gold exchange-traded funds (ETFs) and gold stocks, but not bullion trading.

Bitcoin’s regulation is still in its infancy. Despite the relative newness of the regulatory environment, there have been some strides toward stringent frameworks, such as New York’s BitLicense.

Bitcoin vs. Gold: Store of Value

Bitcoin’s high volatility means that short-term holding can result in losses. However, being a store of value, Bitcoin has thus far always recovered and reached a new all-time high over several years of holding.

Gold has less short-term volatility than Bitcoin. It also provides returns when held long-term, but gold’s returns are lower than Bitcoin’s during a 10-year period. As with any investment, risk and reward must be carefully considered.

Which is the Better Investment, Bitcoin or Gold?

Choosing between investing in Bitcoin or gold depends on the investor’s risk appetite and investment goals. Bitcoin’s returns since 2009 overwhelmingly exceed those of gold. 

On the other hand, gold has been around far longer, suggesting that it may be less risky to hold. However, transporting gold is inconvenient and can be costly. 

To decide which investment is preferred, investors should compare each asset’s features and benefits to their investment goals. The asset that best aligns with one’s goals is, typically, the most suitable investment. It also never hurts to diversify.

Frequently Asked Questions 

Which is more valuable, gold or cryptocurrency?

Bitcoin’s returns for the past 10 years have exceeded those of gold. 

Is it better to buy gold or Bitcoin?

Buying gold or Bitcoin depends on each investor’s goals and risk appetite. You should determine which asset aligns with your investment objectives the most.

Why is Bitcoin more valuable than gold?

Bitcoin’s long-term returns exceed gold’s returns over the same period. However, gold has been around for longer, and brings real-world utility. Bitcoin has attracted more attention than most assets since its inception due to unprecedented performance. 

Where can I buy Bitcoin and gold?

You can invest in Bitcoin, gold, or tokenized PAX Gold within a retirement account at BitcoinIRA. Gold is also available through GoldClub Direct and Digital Trust.

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