Gold vs Bitcoin… Which Is Better?

Okay… you have some extra money and you’re ready to make an investment. You sit down and ask yourself… should I invest in the stock market? Bitcoin? Gold? You end up settling on either bitcoin or gold. But, now you’re wondering which is a better investment long term, bitcoin or gold? While the answer to this question is never easy, through this blog, Coin Cloud discusses the differences between the two to help steer you into make that decision on your own.

Look at Bitcoin as a Digital Commodity

Like fiat currencies, the idea for bitcoin is to be able to buy and sell everyday items using the crypto. Unfortunately, this hasn’t quite caught on yet as bitcoin’s volatility has made it unrealistic to buy regular items using the crypto. For example, a pizza bought in 2010 would’ve been worth $63 million today due to bitcoin’s soaring price.

Instead, bitcoin’s volatility has allowed it to serve as an investment asset — a digital commodity of some sort, something to be invested in for the long term. In some ways, bitcoin is very similar to gold. Back during the gold rush, everyone was rushing to get their hands on gold in hopes of making a lot of money. Bitcoin is similar in that people are rushing to get their hands on an asset that has only increased in value since its inception. But, what is the real difference between the two and what is a smarter investment?

Applicability: Well first off, aside from the novelty of bitcoin being the newer of the two assets, bitcoin has a lot more value in today’s digital economy. Historically, gold of course played a vital role in trade. People could buy and sell everyday items using gold coins. Today, not so much. Gold must be liquidated in order for it to be used in commerce.

Bitcoin, on the other hand, can be used to buy and sell items without having to be liquidated. See 10 Items You Didn’t Know You Could Buy Using Bitcoin. In addition, the increase in businesses allowing bitcoin to be used as a means of exchange suggests that bitcoin’s utility in society will continue to grow in the coming years, whereas gold has essentially hit its usability peak.

Inflation vs Deflation: Another advantage that bitcoin has over gold is that its supply is fixed and final. This eliminates the fear of inflationary pressures associated with overproduction that could decrease an asset’s value. Although it seems like gold isn’t an inflationary asset, it really is. The global supply of gold actually increases by roughly 1–2% every year. Because of bitcoin’s fixed supply, it’s future utility as a means of account and exchange increases, once again, making bitcoin the better long term investment.

The Risks: When it comes to how risky an asset is, gold wins this battle. Bitcoin is susceptible to government regulation and technological development. For example, if a country decides to disallow bitcoin to be used in local commerce, it’s value will only decrease. Of course, it can still be used across international borders but its local value will surely diminish. In addition, a new cryptocurrency could be launched that makes bitcoin value relatively insignificant.

Gold, on the other hand, has proved its value for centuries. It proved itself indestructible even after governments have tried outlawing it in the past. This happened in 1933 when President Franklin D Roosevelt implemented measures to criminalize possession of the asset.

Another thing to keep in mind is that there have been multiple assets over the years that have boomed and busted. For example, real estate, the dotcom boom and dutch tulips all seemed promising at the time but eventually ended up crashing and burning. Gold has stood out as one of the few assets that has actually maintained its value decade after decade. It’s ability to do this gives people the level of trust needed to store value in this particular asset. Bitcoin simply doesn’t have the historical proof to compete with gold in this way.

Maybe We Should Change the Conversation

Instead of pinning gold against bitcoin, maybe we should talk about how bitcoin and gold can coexist with one another. Depending on your investment portfolio, allocating a portion of your funds into bitcoin for a more risky but potentially higher yielding return and then allocating a portion to the less risky gold may be a smart move. It all comes down to how risk averse you really are.

One thing we can say is that bitcoin in just in its beginning stages. It’s value has already increased significantly over the years and still has a lot more to go. While gold is of course the less risky investment, bitcoin has become increasingly less risky over the years and will continue to stabilize as more infrastructure is built around it.