BTC vs gold: which is better?

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BTC vs gold – which one is better, and is money shifting from precious metals to cryptocurrencies?

A stack of bitcoins resting on several bars of gold                                 
Gold is facing a strong challenge from bitcoin – Photo: Shutterstock

Get ready for the fight of the century – it’s bitcoin vs gold. After asserting its dominance as a dependable store of value for millennia, the precious metal is facing a strong challenge from a cryptocurrency that has existed for a decade.

But should you buy gold or bitcoin? Which asset performed more strongly last year – and what are analysts expecting to happen in 2022? Buckle yourself in for the ultimate guide to BTC vs gold.

Bitcoin vs Gold
Comparison between bitcoin and gold – Credit:

Bitcoin versus gold: what they have in common (and what they don’t)

A common narrative in comparisons between bitcoin and gold lies in how both assets are stores of value – with many believing that the world’s biggest cryptocurrency serves as a hedge against inflation. This has led many to describe it as “digital gold”.

But a growing number of crypto enthusiasts believe that BTC has several advantages over the precious metal. Top of the list is the fact that we know for certain that the maximum number of bitcoin that can ever exist is 21 million, whereas the true supply of gold that’s out there is unknown. There’s even a suggestion that there might be gold in space, sending chills down the spines of investors who fear a glut of supply.

Tyler Winklevoss, who became the world’s first bitcoin billionaire with his twin brother Cameron, is an impassioned critic of gold who firmly believes that BTC’s market cap will one day reach parity with the precious metal. A milestone that would result in the cryptocurrency having a price of $500,000 per coin.

In a blog post, he said that one of the biggest problems with gold lies in the fact that, well, it isn’t very practical. Whereas bitcoin can effortlessly be pinged from one wallet to another in a matter of minutes, Winklevoss wrote:

“It’s hard to move gold in the middle of a pandemic. It’s hard to move gold during a war. It’s hard to move gold if there’s a change in government attitude towards your property rights. It’s hard to move gold, period.“

Winklevoss also pointed out that the supply of gold can increase in line with demand – something that’s impossible to achieve with bitcoin. More than 18.5 million BTC are in circulation, and the remaining 2.5 million are going to be released on a set schedule between now and 2140, becoming increasingly harder to find along the way.

He argued:

“As it turns out, bitcoin is better at being gold than gold – and not just incrementally, but by an order of magnitude or 10x better.”

Bitcoin vs gold: a generational shift

The precious metal faces a bigger problem: when given a choice of investing in bitcoin or gold, two-thirds of millennials say they prefer crypto. That’s according to a poll by deVere Group which was carried out in December 2020.

More than 700 millennials (people born between 1981 and 1996) were polled, with most arguing that they believe bitcoin is a more-effective safe haven. For deVere, these findings are especially significant – with the company predicting that gold could end up being dethroned within a generation.

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The company’s CEO, Nigel Green, explained:

“Millennials are to become an increasingly important market participant in the coming years, with the largest-ever generational transfer of wealth – predicted to be more than $60trn – from baby boomers to millennials taking place.”

There are challenges with the narrative that bitcoin is a safe haven asset, however. One of the most vocal critics of cryptocurrency is Peter Schiff, who is an ardent supporter of gold. There’s plenty of evidence that gold’s value surges during times of economic turmoil, as people seek safety away from equities. But according to Schiff, BTC is a risk-on asset that investors will mainly turn to when they’re feeling optimistic about the economic climate.

He tweeted this withering remark:

“Congratulations to those who bought bitcoin early, pumped up the price, and who've been dumping into the hype. You succeeded in getting Wall Street to buy into the mania. When I first learned about bitcoin, I didn't think smart investors would be dumb enough to buy. I was wrong.”

Bitcoin vs gold chart comparison (January 2020 to March 2021)

Price chart for gold – Credit:
Price chart for bitcoin – Credit:

One big thing that separates bitcoin and gold is their volatility. BTC raced up by 300% over the course of 2020, while gold accelerated by a much more modest 23%. This volatility can cut both ways – indeed, we recently saw BTC’s price tumble by a staggering $10,000 in a single day. Although it’s impossible for gold to do this in dollar terms, a drop of 20% over 24 hours is exceedingly unlikely too. One of the worst sell-offs in gold’s history occurred in April 2013, and even then, it only fell by 9%. For Bitcoin, that could be any normal Wednesday.

Many crypto enthusiasts do expect that Bitcoin will begin to stabilise when it rises in value. Long-term predictions for this cryptocurrency’s value are all over the place, but the consensus appears to be that BTC will settle in six figures – and in the process, funds will flow out of gold exchange-traded funds and into the crypto markets.

Bloomberg Intelligence analyst Mike McGlone, in his crypto outlook for March 2021, suggested that BTC might be making gold redundant – and said that $100,000 may be the cryptocurrency’s next big threshold.

He wrote:

“The process of bitcoin replacing gold in portfolios is accelerating and we see risks tilted toward more of the same. In 2020, the benchmark crypto gained legitimacy with declining volatility versus the opposite in most assets. In 2021, we see little to stop the process of old-guard gold allocators simply focusing on prudent diversification.”

In the years to come, bitcoin and gold are going to need to learn to co-exist. The question now is whether more institutions will begin to gain exposure to cryptocurrency, and whether BTC’s record of outperforming gold as an asset class will continue.

Trade gold – gold price chart

Daily change
Low: 1953.45
High: 1967.29

Trade Bitcoin to US Dollar – BTC/USD chart

Bitcoin to US Dollar
Daily change
Low: 26722.8
High: 27243.3

Further reading

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