Bitcoin vs. Gold: Comparing Both Investment Options to Buy
As amazing as Bitcoin may be as an investment option, it’s a good idea to compare it with a proven investment option, gold. In our analysis, we go over the benefits of both the metal gold and Bitcoin as well as their investment opportunities. We will compare their short-term and long-term stores of value side by side for easy comparison.
Comparing Bitcoin and Gold
Table of Contents
Gold as an Investment
While other investment options such as stocks carry financial risk during an economic crisis, gold has a strong investment value and is a tangible commodity. It used to be considered a potential currency many years ago and has become a solid investment choice for long-term strategies.
It's a valuable commodity for the common investor. Additionally, its price behavior tends to be stable during uncertainty, creating consistent demand.
Benefits of Gold
- Easy to buy and sell gold in any given currency.
- Safe long-term investment - historically used as true money.
- Historically safe against market crashes and economic disasters.
Gold Historical Price - Past 5 Years
Below is the price of gold in the past 5 years. As an investment choice, gold and other precious metals maintain a strong market value during a financial crisis.
Gold is Easier to Convert Into Cash
Gold has the same value all over the world. This is due to the fact the people all over the world want gold. However, the same cannot be said about Bitcoin. Only a select number of investors are interested in it. This is a crucial point when comparing cryptocurrencies to precious metals. Diversifying a portion of your investment account value into metals is an easy way to protect assets for the long-term.
Bitcoin as an Investment
How would you like to invest in something that costs less than three cents per unit, but will grow into several hundred dollars within a year? Chances are, you will not be alone in agreeing to such an opportunity. Bitcoin used to be this great deal for investors as an investment asset.
Today, Bitcoin has soared in price over the years. It has become a viable investment choice as it has become a normal item in trading accounts. It's store of value, while not a secure as gold, has become increasingly viable for virtual savings.
The price of Bitcoin has surpassed $5000 and is estimated to only continue to rise. Bitcoin has seen a lot of movement in 2021 so far, dipping off in price during the month of March but recovering during May.
Benefits of Bitcoin
- Rarer than gold.
- Security as an investment asset.
Bitcoin Market Cap
Below is the market cap of Bitcoin since 2014.
How Is Bitcoin Different?
It is a purely digital creation created by open source software that mines for new Bitcoins using highly complicated computational algorithms. It also has a fixed quantity. Once a certain number of Bitcoins are created, no new ones can be made. It is due to this combination of factors that a Bitcoin is such a hard investment commodity now.
Is Bitcoin a good investment in 2021?
While not being the best investment such as gold, Bitcoin is still an investment option you should consider to diversify your portfolio. It is an option to consider for 2021 alongside gold, stocks, etc.
Hear about what Bill Gates, Warren Buffet, Elon Musk, and Richard Branson think of Bitcoin below:
Common Comparison Questions
Which is Easier to Track?
Ease of Tracking: Gold is Easy to Track / Bitcoin is More Difficult
Gold is easy to track because it has a global tracking system. This helps to preserve the value of the investment option because it makes it harder to fake, steal or misreport.
Sadly, the same cannot be said about Bitcoins. In fact, one of the biggest Bitcoin exchanges MT.GOX based in Tokyo, Japan crashed because of a flaw in its software that allowed hackers to steal millions of dollars worth of Bitcoin. Moreover, tracing Bitcoins is impossible because it is originally designed to evade government entities.
Whether you are going to avoid paying taxes or try to fund activities that should not be funded, Bitcoin is there. It is untraceable and highly-encrypted. No wonder, it was the preferred digital currency of choice for online cybercriminals.
Keep this in mind because this can be a serious limitation on Bitcoin should global governments decide to regulate these cyber-currencies.
Is Gold or Bitcoin Rarer?
Gold is Rare, but Bitcoins are Rarer
One key advantage Bitcoin truly shines is its rarity. While gold is rare, Bitcoin is much rarer because there is a limited amount of it that can come into existence. The software stops producing beyond that limit creating a strong market value.
This is crucial to understand because whenever supply is restricted, and demand is high, the price goes up. The higher the demand and the lower the supply, the higher the price will become.
Gold, on the other hand, goes to supply-and-demand cycles where high demand for gold pushes miners to look for newer sources of gold. Moreover, when gold is expensive enough, people all over the world would cash in their gold jewelry and coins. Then a lot of these materials are melted to create pure physical gold.
How are Their Exchange Markets?
Gold has a Solid Global Network of Exchanges / Bitcoin Exchanges are Still in Transition
As mentioned above, a Bitcoin exchange MT.GOX crashed. Usually, when exchanges crash, this produces a lot of certainties regarding the investment instruments being traded by those exchanges.
Fortunately, gold doesn’t have such a problem with exchanges. In fact, it has so many exchanges that Bitcoin cannot even compete with. Moreover, gold’s global network of exchanges is fairly transparent because the pricing signals are clear.
On the other hand, Bitcoin isn’t so clear. There are only a few exchanges that are different from each other. If enough of these exchanges experience issues down the road, this can cause a crisis in confidence that may affect Bitcoin's value.
What Are Bitcoin and Gold Valued?
Gold has a Solid Baseline Value / Bitcoin is Purely Speculative
The great thing about investing in gold is that there will always be an industrial demand for it in terms of jewelry. In other words, there is a baseline value for it. Its price cannot crash below a certain line otherwise it would hit this base demand.
Pair that with the fact that gold has historically been viewed as a store of value because it can be tapped during uncertain economic times. However, the same cannot be said about Bitcoin because it is purely speculative as there is no industrial use for it is only a digital creation. It only exists in the Internet and hard drive storage and servers.
U.S. Dollar Market Cap
Below are statistics on the U.S. Dollar market cap from 2006 to 2016. The market cap is much larger than the two items compared.
So - Which Investment Option is Best?
It may seem crazy comparing both of these. After all, gold is a historical store of value and is recognized all over the world. However, considering the huge appreciation of Bitcoin, an analysis of these two is more than warranted.
Bitcoin or Gold?
On one hand, gold is a physical metal and Bitcoin is a digital currency. Gold historically is a more stable investment choice for those looking to keep their assets safe. Bitcoin is better geared for those interested in potentially making large gains or planning for the long term (Bitcoin will fluctuate in price over time).
A lot of investors may be tempted to invest in Bitcoin. The factors stated above should be kept firmly in mind. While Bitcoin does have a lot of good things going, there are still a lot of questions regarding this particular investment vehicle.
Where to Invest?
If you are interested in investing in gold or other precious metals, learn more about securing your retirement with metals here. If you are looking to jump into the cryptocurrency market, there are now easy investment options for Bitcoin.
- Gold Vs. Silver: Which Metal to Invest In?
- Investing in Gold: A Complete Guide
- What Will the Worth of Gold Be If the Economy Collapses?