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At times when the global economy is shaky and the future strength of national currencies is unknown, investors often look to broaden their portfolios, scoping out alternate assets. This begs the question of which asset will stand the test of uncertain times and which would be most worthwhile investing in.
Beyond venture capital, equity and property, commodities and cryptocurrencies are popular asset classes which investors look towards. Bitcoin and gold, specifically are most commonly associated with current investment opportunities worthwhile considering. Bitcoin, which has been likened to an electronic version of the precious metal, stands as the new kid on the investment block.
Why Is Bitcoin Called Digital Gold?
Bitcoin has been referred to as the “digital gold” by professional investors, casual traders, and crypto enthusiasts. This comparison is born from several similarities that the assets share. Both gold and Bitcoin are different from national (or fiat) currencies in that they are limited in their supply and will run out. While gold, underground and a physical asset, is difficult to know the exact quantity remaining, we know that Bitcoin is capped to a maximum supply of 21 million. Once that is reached, we know that no more Bitcoin will be mined.
The similarities between Bitcoin and gold:
- Bitcoin and gold both need to be “mined” into supply. Gold requires mining underground to dig up the physical precious asset, Bitcoin mining is algorithmic and requires energy-intensive nodes to solve the ‘puzzles’ to verify blockchain transactions which allow more Bitcoin to be created (until the supply reaches the 21 million cap).
Read more: What is Bitcoin mining? - They have both been identified as safe-haven assets. This is because both assets cannot be printed when the economy needs it, which makes it maintain its value over time. This means that its value or interest rate is not negatively impacted by governmental decisions.
- Both assets are commonly speculative and driven by sentiment. Bitcoin is well-known as a volatile asset, and if there is positive sentiment surrounding the cryptocurrency market, the token will likely be doing well. The value of gold, as a precious metal, is similarly driven by speculation and can see an increase if investors think and agree that it will see a rise in price.
The key differences between Bitcoin and gold
While they are similar in ways, Bitcoin and gold have several glaring differences which often divide investors between the two assets.
- Gold is physical, while Bitcoin is purely electronic. This is the most obvious difference and it plays a major role in choosing between which alternate asset to purchase. Gold, as a tangible asset, can be used to create other products like jewellery, whereas Bitcoin is simply a digital investment.
- Gold has far more tenure in its life as an asset than Bitcoin, having been used for trade for centuries. Bitcoin has only been around for a decade.
Which Is A Better Investment: Bitcoin Or Gold?
The value of gold
Over the past ten years, the precious metal market has held well overall, with a dip around 2013, to recover with an increase over the past few years. Now, the asset is looking at staggering values, nearing an all-time-high despite the previous decline and the global pandemic. At the time of writing, gold is holding a price tag of $1817.30 USD per ounce, which is a 7% increase in daily trading value.
The value of Bitcoin
Bitcoin, as a younger asset, has had a far more volatile decade than gold. Since 2013, the cryptocurrency has seen massive increases and bearish declines, followed by surging recoveries. At the end of 2017, Bitcoin hit its highest peak to date, soaring to hold a value of $20 089,00 USD. At present, Bitcoin is valued at $9 174,59 USD per Bitcoin token, which is a 0.38% increase in daily trading values. Despite its characteristic volatility, Bitcoin has held a stable price over the past month sitting between $8 900 USD and $9 680,37 USD.
When it comes to investment, the two assets speak to different opportunities. Bitcoin’s volatility offers greater risk, but it also allows for the potential of greater reward. It also has the benefit over the gold of having a known supply quantity, meaning it can never risk overproduction. This means that the limited supply could well lend itself to strong demand as the limit of the cryptocurrency continues to draw nearer.
Gold stands as a strong hedge against market volatility and this is likely not going to change. This is especially true at the moment, given both the concerns around national economies and the currency positive trajectory of gold.
Whether you should opt to invest in Bitcoin or gold now depends on your risk appetite. If you are looking for a safe-haven without facing a high risk-reward, putting more funds towards gold might be your best bet. But if we are gearing towards a future where Bitcoin might explode again, then investing in the cryptocurrency market isn’t a bad idea.
If it’s possible, the ideal scenrio would be to ensure your portfolio is secure and diverse and consider adding both cryptocurrency and commodities to your assets.