Gold vs Bitcoin – Which Is A Better Investment
Many investors are looking to acquire more assets to hedge their investments and grow their portfolios. Fortunately, an increasing range of investment types are becoming available and accessible to retail investors. In the past decade or so, the emergence of cryptocurrencies as an investment route has enticed investors to diversify their portfolios, with Bitcoin being the market mover.
Traditionally investors have looked to the stock market as their primary means of investing, but many other choices could be worthwhile. In a fast-changing world with increasingly fragile currencies and global economy, it’s becoming apparent that diversity is key. Whilst digital currencies are popular due to the possibility of life changing gains, investors shouldn’t dismiss investment options with a long history and track record. A great example of this is investing in gold bullion or other precious metals, which can be overlooked for the modern wave of liquid investments. But how does Gold stack up against the darling of cryptocurrency, Bitcoin?
Cryptocurrency is a growing investment method which can provide short-term opportunities for those looking to invest. Currently though, it falls below gold in several key areas.
Gold has often been the currency of choice throughout history because it is a valuable and scarce commodity. Gold acts as a hedge against high inflation and deflation, helping to manage the impact of changing interest rates. As gold is rarer than most other metals, it holds and increases its value well.
Precious metals such as gold and silver help solidify investors’ finances through ownership of tangible physical coins or bars rather than relying on paper assets. The World Gold Council aims to promote and maximise the industry’s potential growth of gold consumption. They set the expected standards and aim to strengthen the markets, which is great for investors.
Unlike a gold-backed (fiat) currency, Bitcoin is backed by blockchain technology and free of a central authority. It began with niche enthusiasts who wanted an encrypted and decentralised system for digital currency. The idea was Bitcoin would be an alternative to the stock market and the banking system.We will look at gold vs bitcoin in greater detail to help you get the right strategy for investing. The first key point is that investing in gold is something that is regulated and understood by central authorities, while Bitcoin is not. Let’s see how else they compare.
Now we focus on directly comparing the two assets on a number of key features which impact investors. In this section, we put Gold and Bitcoin head-to-head on Security & Safety, Volatility, Price Performance, Ease and Speed to Sell, Track Record & History, Scarcity and finally Tax Efficiency. At the end of each section, we declare which of the two investments performs better for that factor.
Gold is one of the most secure investments which can be made. It can be stored in highly secure vaults and banks, which are practically impenetrable. Of course, this makes it more difficult to access your gold than it would be to access your bitcoin, but for a long term investment portfolio, there is rarely a need for immediate access. It’s common for investors to store modest amounts of gold at home in personal safes or at a local safe deposit facility to gain instant access.
Bitcoin is also very secure. Yet cryptocurrencies are open to hackers and wallets are being hacked and stolen at a bigger rate than ever before. 2022 for example, was the biggest year ever for crypto hacking. It’s thought that up to 2022 approximately 140 billion USD of Bitcoin has been lost, irreversibly. It’s recommended to keep your crypto in a ‘hard wallet’ ledger protected with a personal electronic key rather than on centralised exchanges. Never give anyone your ledger keycode because stolen Bitcoin is irretrievable.
Gold has shown itself be be more secure over a longer period of time, and so wins this category.
Gold is famous for its low volatility over time. It remains unaffected by the stock market and is a pure store of value, especially against forces such as inflation. Gold investment is regularly used as a tool to reduce your portfolio’s overall volatility. It tends to rise in value when other markets fall, providing predictability to your investments.
Bitcoin is the other side of the coin (pun intended!). It has become the flagbearer for volatile, high-risk investment. So whilst there could be a major upside to investment in Bitcoin, the volatility presents a big risk of downside too. With Bitcoin still in its infancy, its price behaviour remains incredibly unpredictable so planning and forecasts are difficult.
Gold is far less volatile than Bitcoin on a daily, weekly and annual basis.
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Like all asset classes, gold has its good years and bad years. It’s not a get rich quick investment and is more suitable to longer term investors. Strong years can see price increases of 30-40% with realistic 10 year averages of around 10% per annum. Gold has outperformed most other asset classes over the past 5-10 years.
Crypto prices have witnessed far greater variance than any other investment class over the past decade. Bitcoin’s value tends to follow its 4 year ‘halving cycle’ with super-charged bull runs followed by horrendous bear markets. Annual price increases of several hundred percent are not uncommon but as Bitcoin matures, the rule of diminishing returns is already apparent.
If you time the market right, Bitcoin’s returns will smash those of gold. However, get it wrong and you could lose your life savings. Bitcoin can be more akin to gambling, with some winners and many losers. Bitcoin wins for returns – if you get lucky!
A huge reason Gold is such a popular investment is its liquidity. Its proven track record over a large period, has created confidence among buyers. Whenever you are looking to sell your gold, you will find a willing buyer. This also supports the buoyancy of the Gold market and accounts for the long-term stability.
There is also good liquidity in Bitcoin, though this appears to have shrunk over the last few years. The cryptocurrency market in general is undergoing a liquidity crisis with major trading companies recently going bust.
Both markets have good liquidity, but Gold is one of the most liquid investments in the world and is our idea of the winner.
Gold is one of the oldest discovered precious metals in the world, and you’d be going back over 6000 years to see when it was first used. It is a unique resource that cannot be replicated or effectively imitated. If you buy gold, then you will always have it.
Bitcoin is also unique and has been around long enough to prove concepts. But there are issues. It is still a relatively new technology, and there are no guarantees that a new method could come along and replace Bitcoin. There are also concerns about regulation, which is currently lacking in scope.
Gold has stood the test of time, and for longevity is the winner.
Gold is in finite supply and it’s not something that can be produced or created. Approximately 50 million troy ounces of Gold are mined each year, and around 194,040 tonnes in our lifetime. Such is the consistency of Gold’s mining and value the World Gold Council has forecasted the next 30 years for gold, which provide valuable insight into the gold demand for the future.
As scarcity goes, Bitcoin can be considered to be very scarce. In fact there are only ever going to be 21 million Bitcoins in existence, and no more can be created or “mined” beyond that cap.
Bitcoin is probably more scarce than Gold, and if issues with fake Bitcoin are fixed, the value could rise.
Certain gold coins are not liable for Capital Gains Tax, which can be a massive advantage for introducing gold coins such as Sovereigns and Britannias into your portfolio. Other forms of gold such as bars and other coins (that aren’t legal tender) will be liable for capital gains tax however, so it’s important to take advice.
When holding Bitcoin, as with any cryptocurrency, you will be liable to pay capital gains tax on your profits.
As certain types of gold are free from capital gains tax, Gold comes out a ready winner for this category.
As always this depends on the kind of investor you want to be and what kind of risk you want to open up your investment strategy to. Bitcoin presents an opportunity for those with a higher risk tolerance whereas physical gold presents a long-term, secure investment opportunity. You can see for yourself by checking our live gold prices.
We would recommend a portfolio which utilised either gold bars or the various types of gold coins, especially as a long term strategy for gold investment.
Even though gold bullion remains a solid investment, digital currencies, like Bitcoin, have become increasingly popular among investors. Investors have made a lot of money on Bitcoin, especially a few years ago, but then came the wild swings and a huge decrease in the market which is yet to recover. There are however a few benefits to owning Bitcoin.
One of the main appeals with Bitcoin is its decentralised nature. There’s a growing trend towards taking control of your personal finances and having more independence from the authorities.
Banks are now regularly making it difficult for customers to spend their own money. It’s common for transactions to be blocked if a bank doesn’t approve and there’s an increasing feeling that authorities are dictating what we can and can’t do.
With the 2008 bank bail-outs still fresh in the mind, the post-Covid economy suggests high street and central banks are once again vulnerable. But with global debt now at record highs, bailouts may not be offered, leaving savings susceptible to being taken. Bitcoin allows payments outside of the banking system, making overseas payments easy and instant.
Similarly, Governments can increase interest rates and taxation to impact and regulate their own currency and economy, but currently have no control or power over Bitcoin.
For this reason, Bitcoin represents a huge danger to the control and prosperity of the establishment, which is why crypto’s adoption is meeting huge resistance from these institutions.
It’s common knowledge that the threat Bitcoin poses to central banks has motivated them to start developing their own Central Bank Digital Currencies (CDBC) to compete with Bitcoin. The UK, US, China and Euro-region are all several years into development of these CBDCs and plan on launching them in the coming years. If they’re widely adopted, it could spell the end of Bitcoin. But the fact that such ‘centralised’ digital currencies could be used to control how the public spend their money, they are only acting to strengthen the resolve of decentralised crypto supporters.
Clearly gold is a long-established and accepted market, so experiences less resistance from the authorities. It enables the public to take a degree of control of their finances outside of the general banking system.
The true value of Bitcoin is difficult to measure. This cryptocurrency asset holds no one price, and the volatility can vary.
Many see the price of Bitcoin coming with too much volatility and uncertainty. One of the most significant advantages of Bitcoin comes from the first mover advantage.
Those who saw the value of investing in Bitcoin early were the quickest to benefit. In many ways, this is true for both Bitcoin and gold, as those who first invested in the metal found their financial position improving quickly.
The advantage of Bitcoin vs gold is that Bitcoin (BTC) has delivered significantly higher returns than other assets in recent years. While fiat currencies and very liquid assets can be hard to measure, digital assets like Bitcoin can appeal to potential investors due to their modern market position.
Gold can now be purchased digitally. This isn’t necessarily a type of digital currency, but it allows you to invest in the yellow metal anywhere, anytime. Gold ETFs, also known as Gold Exchange Traded Funds, will enable you to invest in gold through the stock market.
To be eligible, investors must purchase a minimum of one unit equivalent to one gram of gold to trade in gold ETFs. Plenty of guides can further cover the benefits of gold investment, so you understand if you should still opt for actual gold.
Investors can also add to their portfolios by purchasing Gold Mutual Funds. These Mutual Funds track the price of gold as the assets rise and fall in value. It’s good to know that mutual funds charge investors an expense ratio, a fund management charge, and the actual charge for purchasing the underlying asset.
Similar to gold, Bitcoin can be purchased online through traders, both through private platforms as well as public marketplaces. The Bitcoin vs gold debate is challenging, but it’s important to note that it is primarily dictated by market downturns either way.
On face value, Gold and Bitcoin are polar opposites. Physical gold bars and coins have an intrinsic value with a millennial track record. It appeals to those seeking to reduce their risk profile. In contrast Bitcoin’s value is truly subjective, with a distinct danger of being worthless if authorities succeed in banishing it from the globe.Most of its investors seek the possibility of getting rich, with the knowledge that ownership represents a huge financial risk
But as Bitcoin’s existence has progressed, it’s become apparent that these two ‘alternative investments’ not only share some commonalities but can also appeal to the same investor base.
Both assets provide the opportunity for investors to proactively take control of their finances outside of the traditional banking world. Both investments appeal to those who refuse to accept the control and established investment format.
For those reasons, many of our precious metals investors also own some crypto currencies, including Bitcoin. A very common strategy is to diversify between Gold, Silver, Bitcoin and altcoins. If cryptos rise significantly in value, these investors ‘remove some chips from the table’ by selling some crypto and using funds to solidify that profit into solid gold.
History sides with gold, but you should still look to diversify your investments. Look into other precious metals, such as silver and also the different kinds of gold to make sure your portfolio is diverse.
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