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Bitcoin Vs. Gold: Which Is A Better Investment?

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December 22, 2022
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    Inflation has reached a 40-year high in recent years, and consumers have seen month after month price increases on everything from gasoline to utilities, cars, housing, food, and clothing. During these times, investors turn to commodities to mitigate the effects on their investment portfolios. One particular commodity is gold, which works effectively as an inflation hedge. 

    During a downward economic trend, gold is an effective inflation hedge, but new alternatives are challenging the traditional capital preservation methods. Investors are interested in Bitcoin as an inflation hedge as it has been around for a long time and has gained support and recognition. So, which is better: Bitcoin or Gold? Let’s find out in our Bitcoin Vs. Gold article.

    Bitcoin

    Bitcoin is a decentralized, peer-to-peer cryptocurrency, which means all transactions take place directly between independent, equal network participants without the need for intermediaries. Bitcoin was developed to make online payments easy without going through a financial institution. 

    When the COVID-19 pandemic hit and economies around the world were shutting down, stock prices were plummeting. However, investors noticed that Bitcoin was solid. In fact, it was slowly growing. 

    Gold

    Gold has been around for thousands of years, and it has cemented its position as an important and tangible store of wealth. Be it individual investors, institutional investors, or banks, it is owned by them all. Moreover, its use is growing in high-end electronics and technology and with its extreme popularity in India and China is boosting its value even more.

    Gold has the upper hand over other types of investments because it is both an investment and a consumer good. Maybe the best of all is that it performs strongly during times of economic hardship as well as growth. Another thing to note about gold is that it performs well during market corrections and holds its value steadily. 

    When the entire world was hit by the COVID-19 pandemic, a lot of investors turned to gold instead of Bitcoin. This led to an increase in gold prices, which blew up from $1,300 in 2019 to $2,100 in 2020. Its value decreased as economies recovered, but it still maintained a higher value than before the pandemic. 

    Bitcoin Vs. Gold: Key Differences

    Now that we have a basic understanding of Bitcoin and Gold, let’s look at what are the key differences between them and ultimately, which one is better.

    Bitcoin Vs. Gold: Regulation

    Both gold and Bitcoin are tough to steal or fake, and tracking them is also simple. However, gold is highly regulated, whereas Bitcoin is not. The regulatory framework for Bitcoin to make it safe for users does not exist as of now. Its anonymous nature adds to its regulatory challenges. 

    You cannot cross national borders with gold unless you have regulatory permission. Bitcoin, however, can be used across borders and is generally legal, with a few exceptions. While buying gold, make sure you are buying from registered brokers or dealers and store it safely. 

    Bitcoin Vs. Gold: Liquidity

    Generally, cryptocurrencies are very liquid, but oftentimes, their liquidity fluctuates as compared to other assets. If you have hundreds of Bitcoin, your exchange might not be able to liquidate them because they have a limit on the liquidation of cryptocurrency per day. 

    If you don’t have a lot of Bitcoin, it might be more liquid for you. Gold, on the other hand, can move in and out quite quickly without even losing its value. It is a highly liquid asset and can be relocated quickly when the market fluctuates. 

    Bitcoin Vs. Gold: Utility

    Historically speaking, gold can be used as a luxury item, currency, dentistry, electronics, and more. Gold is a multi-functional asset, and this increases and maintains its value. 

    Right now, Bitcoin is only used as a speculative investment and a digital currency. However, it has a huge role in decentralized finance (DeFi), and emerging financial technology. Here, Bitcoin can be used for borrowing, lending, and more. Bitcoin has enormous potential, but it can become invaluable and useless as well. 

    Bitcoin Vs. Gold: Volatility

    Cryptocurrencies are highly volatile, and Bitcoin is no different. Their value gets affected by investor sentiment, media effects, regulatory actions, and hype. A small tweet from an influential person could spike or plummet the value of a cryptocurrency. If stability is your goal and you want to stay in the cryptocurrency lane, then Stablecoins are the right option. Their prices are pegged to a fiat currency, and hence, they offer stability. 

    Gold as we know steadily increases in value over the years. Whether you want to invest in gold or Bitcoin ultimately comes down to your investment goals. If you want to invest and forget about it for years, gold is a great choice. Or, if you enjoy speculating and have a higher risk tolerance, Bitcoin is right for you. 

    Note: Before you invest, consult a financial advisor, as they can help you create investment goals and give you a better understanding of the investment space. 

    Are Bitcoin and Gold Correlated?

    The crypto market is in a bearish trend, but investors still believe in Bitcoin. Amid the ongoing economic downturn, investors have confidence in Bitcoin due to the rise in the correlation between Gold and Bitcoin. 

    This correlation is seen as an inflation hedge and it has been on the rise this year. It hit record levels in October this year. It started when Bitcoin’s movement was decoupled with US stocks. Simply put, crypto is branching away from stocks and this has strengthened crypto’s connection to gold, according to crypto analysts.   

     

    However, the correlation is mildly strong. Both Bitcoin and Gold moved upwards by 3 percent in the month of October. This means that investors are seeing Bitcoin as a safe haven for investment.

    Gold Vs. Bitcoin: Final Thoughts 

    Bitcoin is relatively new as compared to gold, which has existed for thousands of years. Gold is an investment that grows slowly but it offers good returns. Bitcoin, on the other hand, can offer good returns in the short term, but it is volatile in nature.

    FAQs: Gold Vs. Bitcoin

    1. Can Bitcoin substitute gold?

    Gold is a physical asset and it can be held securely in your hand without the internet or a hacking threat. Gold has always been a storage of wealth. Bitcoin due to its volatile nature can never replace gold.

    2. Will Bitcoin ever be backed by gold?

    No, Bitcoin is not backed by gold, fiat, or any other precious metal. Its value is affected by usability, decentralized acceptance, demand, and technological value. Its price fluctuates with usability and demand.

    3. Why can't Bitcoins replace gold?

    Gold has a lot of uses, it is finite in supply, and its physical supply can be tempered. Moreover, it has been around for thousands of years, has outlasted failed fiat currencies, and has survived market crashes, while cryptocurrency is very new and precarious.
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