Closely examining all of your investment options is a wise idea before you begin pouring your savings into a new investment. Gold and Bitcoin are both popular investments, but just because other people have chosen them doesn’t mean they’re right for you.
Gold offers several advantages over Bitcoin and vice versa. So which investment is best for your needs?
Below, learn everything you need to know about investing in gold vs. Bitcoin.
Brief History of Gold and Bitcoin
One of the main differences between gold and Bitcoin as commodities is their histories. Gold has been around for thousands of years, while Bitcoin is relatively new.
History of Gold
Gold’s history on the planet dates back as far as 40,000 B.C., while the first human interaction with gold may have been in 3,000 B.C. in Ancient Egypt.
In 1792, the U.S. passed the Mint and Coinage Act to value gold in U.S. dollars. This gold standard ended in 1971, but the metal is still a booming investment today. The gold spot price — the price of gold per one troy ounce — fluctuates daily.
History of Bitcoin
Bitcoin is a completely different investment vehicle from gold. Satoshi Nakamoto — a pseudonym that may represent multiple people — invented Bitcoin in 2008 as a decentralized currency with no central bank. Instead, users send and receive Bitcoin through a peer-to-peer network.
Nakamoto initially introduced 50 Bitcoins in the open-source software Genesis Block. Since then, additional contributors have mined Bitcoin through the process of solving complicated math problems that validate digital transactions. Cryptocurrency is a bit of a complex phenomenon, but you don’t need to understand Bitcoin mining to invest in it.
Market Performance of Gold and Bitcoin
Examining the past performance of gold vs. Bitcoin can also shape your investment. While the past doesn’t necessarily dictate the future, analyzing trends in performance can help you predict the long-term performance of your investment.
Analysis of Market Performance
The price of gold has fluctuated significantly throughout history, but the overall trend in gold’s value is upward.
Consider how the average prices of gold (per troy ounce) have changed across the following years in the past few decades:
- 2005: $444.74
- 2008: $871.96
- 2012: $1,668.98
- 2014: $1,266.40
- 2015: $1,160.60
- 2016: $1,250.74
- 2020: $2,074.88 (all-time high)
- 2023: $2,050.50
Meanwhile, the price of Bitcoin started at $0 after its launch in 2008, but its value has wavered quite a bit since then. For instance, consider these Bitcoin prices across the last 15 years:
- 2010: $0.09
- 2013: $1,238
- 2015: $315.21
- 2017: $19,345
- 2020: $6,635
- 2022: $18,000
Comparison of Investment Returns for Both Assets
The average return on gold and Bitcoin varies with the price fluctuations of these investments. For instance, between 1971 and 2019, the average annual returns on gold were 10.6%, but this figure rose to 24.6% in 2020. Still, the annualized return between 2011 and 2021 was just 1.5%.
In 2017 and 2018, the average returns on Bitcoin were 6.3% to 7.3%. But across the five-year period between 2017 and 2021, Bitcoin’s average return was 111.7%, while gold’s was 11%.
Basing your investment solely on average returns, Bitcoin would seem like a wiser choice, at least in today’s market. But Bitcoin is more volatile than gold, which means the value could plummet quickly.
Main Differences Between Gold and Bitcoin
Investing in gold or Bitcoin doesn’t guarantee returns, but there are many other reasons to choose one investment product over the other.
Supply and Demand
Gold and Bitcoin are both in limited supply, but there’s a significant difference to consider:
- Gold is relatively scarce. It’s hard to come by, but gold reserves can continually expand.
- Bitcoin is finite. Its supply is strictly limited to 21 million coins.
Because there is a definitive cap on the number of Bitcoin coins available, its value is deflationary. As contributors continue mining Bitcoin and its supply gets closer to this 21 million cap, increased demand could cause its price to soar.
The demand for gold is still high, despite the fact that there could always be more gold waiting to be discovered. The gold supply doesn’t always match demand, causing its value to fluctuate.
Volatility
Volatility refers to the risk tolerance involved in investing in an asset. Bitcoin is more volatile than gold because its price fluctuates significantly over time. Media involvement and popular culture have created an ever-growing dynamic around Bitcoin and cryptocurrencies, causing investors to make abrupt decisions, pull out their investments quickly, and panic at the first sign of decreased valuation.
In contrast, while the price of gold fluctuates, its fluctuations are not as large as Bitcoin’s.
Liquidity
Both gold and Bitcoin are liquid, meaning you can cash them in quickly. As of 2023, gold may be slightly more liquid than Bitcoin.
You can easily sell gold through a range of methods, such as online or at a pawn shop. Meanwhile, some Bitcoin platforms have daily limits for the number of coins you can exchange.
Accessibility
Accessibility is a relative term, but many older investors feel more comfortable investing in gold than Bitcoin. They know how the precious metals market works and feel comfortable buying and selling the asset. Meanwhile, Bitcoin and cryptocurrencies are new concepts that some investors may feel intimidated investing in, especially those who are not tech-savvy.
Utility
Gold has a wide range of uses in jewelry, electronics, currency, and even dentistry. But Bitcoin’s utility is more limited. It’s only uses right now are as a digital currency and a speculative investment, but new financial technology could allow Bitcoin to facilitate lending transactions in the near future.
Security
The security of either investment depends on the measures you take to protect it. Gold can be incredibly secure in a private, insured, monitored storage facility. But like any physical asset, there’s always a risk of theft, even with the utmost security measures in place.
The blockchain technology that protects Bitcoin is very secure, but hackers could steal your private keys if you don’t protect them and steal your Bitcoin. Still, since Bitcoin is a digital asset, it can’t suffer physical damage that affects its value like gold can.
Regulation
Gold has historically had a very trustworthy regulation procedure. This commodity is challenging to fake, and you can only purchase it from registered dealers in most cases.
Bitcoin is also difficult to fake, but because cryptocurrency transactions are anonymous, it is challenging to fully regulate the buying and selling of Bitcoin.
Which Investment Is More Valuable: Gold or Bitcoin?
You can’t really compare the value of gold vs. Bitcoin apples to apples — one is a physical metal, and the other is a digital asset. The value of Bitcoin is around $27,000 per coin in 2023, while the value of gold is close to $2,000 per troy ounce. But again, these units aren’t comparable, and you can invest in a fraction of each if desired. (The smallest unit of Bitcoin you can invest in is a satoshi, equal to one 100-millionth of a coin.)
Which Offers a Greater Inflation Hedge: Gold or Bitcoin?
Gold has historically been a better inflation hedge. When inflation is at its highest, people tend to invest in gold to protect the value of their money. But gold’s price isn’t completely stable, so it can’t completely hedge against inflation.
Bitcoin tends to resist inflation, but because it hasn’t been available for nearly as long as gold, the data is inconclusive.
Advantages and Disadvantages of Each Investment
Pros of gold:
- You can physically hold and store your gold investment.
- Gold has utility across a range of industries.
- Gold is easy to understand and start investing in.
Cons of gold:
- Your physical gold is vulnerable to theft and damage.
Pros of Bitcoin:
- Your Bitcoin is relatively safe with blockchain technology.
- The Bitcoin supply is finite, suggesting a deflationary trend.
- You can buy and trade Bitcoin quickly without needing to take physical possession of it.
Cons of Bitcoin:
- Bitcoin is not as accessible for new investors.
Tax Implications Between the Two Investments
The IRS treats gold and Bitcoin investments the same. Both investments are subject to capital gains taxes — when you hold them for longer than a year and sell them at a profit, you’ll owe taxes on the sale.
Which Is Better for the Long-Term?
Bitcoin’s volatility suggests that it could be a better long-term investment. Just looking at historical data, the value of Bitcoin has increased by about $18,000 in the past 12 years. But historical data is in short supply for this relatively new asset, which means investors can’t really predict where its value is headed long-term.
Gold has been around for thousands of years, and historically, its value has increased over time. But just looking at the past ten years, Bitcoin has seen a greater increase in value.
The right long-term investment for you is up to you and your investment advisor. But be sure to also consider the other factors that make gold vs. Bitcoin unique and choose the one that will best suit your portfolio.
If you want to learn more about investing in gold, contact Learn About Gold now by sending us a message or taking a look at more of our articles on our blog.
