Bitcoin vs Gold:
Similarities and Differences
Gold has been a safe haven asset of choice in times of market turbulence due to its low volatility and thousands of years of history as a stable store of value. Gold has almost no correlation with other assets such as stocks and currencies, which is the reason many investors have been investing in gold to diversify their portfolios or to hedge against fiat currency inflation.
On the other hand, Bitcoin, a cryptocurrency launched in 2009, has since opened up a new era of digital currencies. Even though Bitcoin has been seen as a risky and speculative investment, Bitcoin’s price has skyrocketed in the last decade. Paired with its unique features, there’s no doubt why many investors are looking into adding Bitcoin as a means to diversify their portfolios.
Let’s compare the similarities and differences between gold and bitcoin.
Similarities:
- Liquidity: Both have liquid markets where fiat money can be exchanged for them.
- Divisibility: Both are divisible into smaller quantities.
- Scarcity: Both have limited supply thus they act as a hedge against inflation.
- Correlation with other financial markets: Both offer a hedge against equities due to their low correlation with the stock market.
- No interest: Bitcoin and gold pays no interest. Instead, they can be valued based on the opportunity cost for cash interest.
- Retrieving method: Gold and Bitcoin come into existence through the processes of mining, in contrast to paper currency which can be freely printed.
Differences:
- Intrinsic value: Bitcoin has no intrinsic value, its value is dependent on market forces. Gold has historically been used as jewellery or for industrial applications.
- Scarcity: Bitcoin’s supply is halved every 4 years (ends at 2140), gold is being mined every year. To date, 18.6 million Bitcoin has been mined out of 21 million total supply.
- Security & control: Bitcoin is not controlled by anyone including the government. However, there are security issues as the infrastructure to ensure its safety is not yet in place.
- Storage: Bitcoin does not need storage and insurance thus enabling investors to save on these costs, unlike gold.
- Transport: Bitcoin is portable and near frictionless to send and receive. It can be sent from anywhere to anywhere in just seconds as long as you have your keys.
- Market value: Total market value of gold supply > Total market value of Bitcoin supply
- Volatility: Bitcoin is more volatile as compared to gold.
- Market liquidity: Gold’s daily trading volume is much higher than that of Bitcoin.
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