It’s been a remarkable time to be a Bitcoin (CRYPTO: BTC) holder. Since the start of 2023, the leading digital asset has surged 307%. The approval of spot exchange-traded funds (ETFs) and the upcoming halving in April were recent catalysts.
Investors might be surprised to learn that gold is also near record highs due to bullish sentiment. Bitcoin and this precious metal are often compared to each other. However, the leading cryptocurrency is a superior asset to own.
How Bitcoin and Gold are Similar
Market participants frequently compare Bitcoin and gold. Therefore, it might be useful to understand some similarities between these two.
Scarcity is a crucial factor for investors. Bitcoin’s software includes a hard supply cap of 21 million coins. Similarly, the Earth’s crust contains a finite amount of gold.
The prices of assets with a fixed supply should theoretically rise as demand increases. This fundamental economic principle explains why gold has been a popular store of value over long periods.
Additionally, both assets have utility. Gold is primarily used in jewelry but also in certain industrial applications. Similarly, Bitcoin’s value stems from being a decentralized network with no central authority, reducing transaction costs when sending money globally.
Bitcoin’s Advantage
At a high level, it’s clear that both Bitcoin and gold are scarce and have utility in different contexts. However, a deeper analysis reveals why Bitcoin is a superior investment.
Revisiting the topic of scarcity, some investors might believe that gold has a fixed supply cap, but this is incorrect. According to the U.S. Geological Survey, 77% of all the gold in the Earth’s crust has been mined. Therefore, a significant amount of gold remains to be mined.
If demand for gold surged suddenly, mining companies would be incentivized to expand their operations to extract gold from previously inaccessible areas. Thus, gold’s supply could adjust based on demand trends.
In contrast, Bitcoin is truly finite. The previously mentioned supply cap of 21 million coins is highly unlikely to change unless Bitcoin’s stakeholders decide to undermine the network’s value proposition. Because Bitcoin’s supply schedule is immutable, its price has been notably volatile.
Unlike gold, a physical commodity, Bitcoin is a digital asset. This makes it easier to store and transport. Bitcoin can also be divided into much smaller units and is acceptable in various transactions. Imagine trying to pay a restaurant bill by slicing off a piece of gold.
Investors should also consider the store-of-value debate, which is a key comparison point between Bitcoin and gold. Here, Bitcoin outshines the precious metal.
Ultimately, saving and investing aim to increase purchasing power over time. In the past five years, Bitcoin’s price has skyrocketed 718%. This means a $1,000 investment in June 2019 would be worth nearly $8,200 today.
In contrast, the price of an ounce of gold has only risen by 73% during the same period. This time frame included major disruptive events like the pandemic, inflationary pressures, higher interest rates, and general economic uncertainty.
Looking ahead, Bitcoin and gold will likely continue to be compared. However, over the next five to ten years, the leading cryptocurrency appears to be the better investment opportunity.
By Andrej Kovacevic
Updated on 14th July 2024