Bitcoin vs. Gold
Updated: Sep 8
The narrative surrounding Bitcoin has changed in the last few years. No longer merely viewed as just a currency, some commentators now consider Bitcoin to be a form of 'digital gold'. This is due to its limited supply and place in the centre of the blockchain economy - much the same as gold was considered when currencies where pinned to the 'gold standard'.
But which is a better investment in the mid-to-long term? Let's take a look at the Bitcoin vs Gold argument.
A recession causes an economy to contract over a period of time. In the last few years, many people and finance experts have predicted that a recession will hit many countries, and investors are concerned about how to protect their investments during such times.
Instead of hedging against stock volatility with gold, investors are considering a newer alternative, bitcoin, the father of digital currencies.
Gold has been used as an effective method in the past, but this cryptocurrency is challenging this perspective to a great deal and writing its own history with gold.
Since the launch of Bitcoin back in 2009, this gold vs. bitcoin consideration has grown into an international debate. And here we will show you the differences between the two and compare both these commodities.
Comparing Bitcoin with Gold
For centuries, gold has acted a safe haven and asset for investors, but on the other hand, bitcoin came into existence just over a decade ago, but it is widespread and has gained a lot of recognition in the last few years. Below is the comparison of these two investment options:
Transparency, Security, and Legitimacy
Gold is a reputed and well-established system for investing, trading, and weighing. Similarly, it is not that easy to steal it, pass off fake gold, or corrupt the metal. The same goes for Bitcoin; it is also tricky to corrupt due to its well-encrypted and decentralized system, which runs on blockchain technology.
Scarcity or Limited Availability
Both gold and bitcoin are not that common in the general public. Most of us know that only 21 million bitcoin exist in the market, so the thing is still rare despite immense popularity.
On the other hand, gold supply is only limited by technological advances in mining techniques. The total supply of gold on earth is disputed, but the US Geological Survey website assumes that 244,000 tonnes of gold has been extracted from the earth already.
But there is up to 1,000,000 more tonnes of gold within the first kilometre of the earth's crust. Although not economic to extract at the moment, that's not to say technological advances in mining won't make it possible in the future - afterall, the same thing happened with natural gas and advances in fracking (which caused a seismic shock to gas prices worldwide).
Furthermore, we live in an age of private space exploration. And it turns out there's a lot of money to be made from precious metals in an ever expanding universe. For example, an asteroid called '16 Psyche' is floating somewhere between Jupiter and Mars. This asteroid alone is said to contain enough gold to grant everyone on earth $93 billion each at current prices.
Imagine a private company mining such a source? It's looking less and less like science fiction as the months pass and more billionaires leave earth's gravitational shackles in their private intergalactic spacecrafts.
So, from a perspective of scarcity, the code that governs Bitcoin has limited its supply to 21 million forever. Whereas gold could become ultra-abundant as technology in the field of mining improves and we travel further into space. It awaits its own fracking moment.
Gold is still used for several applications like jewelry, luxury items, dentistry, electronics, and more. Bitcoin has various features that make it an ideal currency for countries where people lack access to banks and other types of finance.
Bitcoin is decentralized, so no government or bank policies will control its value; this makes the virtual asset more reliable and enhances its baseline than traditional currencies.
Its true value lies in its use for ultra-cheap international remittances and acting as a 'currency of last resort' for people who's central banks have failed to maintain the value of their local fiat currency. When viewed through the lens of the economic response to COVID-19, the value of Bitcoin is only as limited as the money printed to save economies from the short term shock of the pandemic.
Gold and bitcoin both have markets that are very liquid, where users can exchange fiat money for them.
Here comes the most significant concern for investors, the volatility factor. Keep in mind that bitcoin’s volatility factor is veryhigh and greatly makes this digital currency unpredictable. If you look at its price history in the last decade, you will see amazing and rapid ups and downs.
In 2018, Bitcoin’s price was only $20,000, and one year later, the price of one bitcoin is around $65,000. So, you can understand what we mean.
On the other hand, the gold market is not that volatile as other forms of assets and Bitcoin. Hence it's a safer asset to hold. You won't see the sudden movements or changes in gold's availability or prices that you will see in stocks or Bitcoin.
However, volatility is the price we pay for out sized performance when investing.
And why do we invest? For better performance.
So, we can consider gold (which hasn't appreciated much in price in the last decade) as an ultra-defensive asset for investors who want to take limited risk. Whereas Bitcoin is an ideal asset for those looking for extreme price performance and aren't worried by volatility.
Does Utopia Digital Asset Management's DeFi Infrastructure Fund invest in gold?
No. We aren't a defensive fund. We aim to outperform Bitcoin in the medium to long term and so gold really does not match with our target or our investment strategy.
Does Utopia Digital Asset Management's DeFi Infrastructure Fund invest in Bitcoin?
Yes. Although we aim to beat Bitcoin's performance, we still consider Bitcoin to be the most important and interlinked asset in the blockchain economy. As such, its importance is underlined by being the largest constituent in our fund (although this is subject to change based on a number of factors).
You can invest in our fund and chart its performance on ICONOMI.