These two assets seem to always be drawing comparisons.
It’s been a great time to be an owner of Bitcoin (BTC -0.47%). Since the start of 2023, the top digital asset has soared 307%. The approval of spot exchange-traded funds (ETFs), as well as the April halving, were recent catalysts.
Investors might be surprised to know that gold is also near record highs thanks to bullish sentiment. Bitcoin and this precious metal are often compared to one another. But the leading cryptocurrency is a better asset to own.
How Bitcoin and gold are similar
Market participants like to compare Bitcoin and gold. Therefore, it might be worthwhile to first understand some similarities between these two.
Scarcity is something investors should be mindful of. Etched in Bitcoin’s software is a hard-supply cap of 21 million coins. And in the Earth’s crust, there is a certain amount of gold.
The prices of assets that have a fixed supply should, in theory, rise as demand also grows. This basic economic principle helps explain why gold has been viewed as a popular store of value over long periods of time.
Additionally, there is some utility here as well. Gold is used mainly in jewelry, but it does have a presence in certain industrial settings. Similarly, Bitcoin’s value arises in it being a totally decentralized network with no single entity in charge, thus cutting down transaction costs while sending money to someone across the globe.
Bitcoin’s edge
At a high level, it’s easy to see how Bitcoin and gold are both scarce. Moreover, they both have utility in different situations. But if we dig deeper, we’ll easily see how the top crypto is a superior investment.
Let’s go back to the topic of scarcity. Investors might think that gold has a fixed-supply cap, but this couldn’t be further from the truth. According to the U.S. Geological Survey, 77% of all the gold in the Earth’s crust has been mined. Consequently, there is a sizable amount of gold still left to be mined.
If, for whatever reason, demand for gold shot up in a short period of time, mining companies would be incentivized to invest aggressively to expand their operations in order to target areas across the globe that might be hard to get to. In other words, gold’s supply schedule could be altered based on demand trends.
Here’s where Bitcoin stands out. It’s absolutely finite. That previously mentioned supply cap of 21 million coins is highly unlikely to change unless Bitcoin’s stakeholders want to completely undermine the entire network’s value proposition. Because Bitcoin’s supply schedule can’t be tinkered with, its price has typically been volatile.
Compared to gold, which is a physical commodity, Bitcoin is a digital asset. And this means that it is easier to store and transport. Bitcoin can also be divided into much smaller units, while also being acceptable in certain transactions. Try going to a restaurant and slicing off a piece of gold to pay for the bill.
Investors also shouldn’t ignore the store-of-value debate, which is probably the aspect viewed the most when comparing Bitcoin and gold. Here, Bitcoin shines brighter than the precious metal.
At the end of the day, saving and investing is all about raising one’s purchasing power over time. In the past five years, Bitcoin’s price has skyrocketed 718%. This means that a $1,000 investment in June 2019 would be worth almost $8,200 today.
The price of an ounce of gold, on the other hand, has only risen by 73% during the same time period. And this stretch included major disruptive developments, like the pandemic, inflationary pressures, higher interest rates, and general economic uncertainty.
Going forward, Bitcoin and gold will likely continue to draw comparisons. But I think over the next five or 10 years, the leading cryptocurrency looks to be the better investment opportunity.
