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Gold has been around longer than any cryptocurrency and is recognised by many as a steadfast investment and a sign of wealth in many cultures worldwide. Gold is a physical commodity—a hard commodity—that can be bought as coins or bars, with its weight and purity often verified by accredited laboratories. The yellow metal is also fungible (for example, an ounce of gold is usually identical to another) and is a liquid asset, which means it can be easily bought, sold, and converted into cash.
Given the finite amount of gold in the world, its price is largely determined by supply and demand. And this is where Bitcoin and gold share similarities: their scarcity. Both have limited supply and are not controlled by any government.
Factors driving the price of gold range from demand for jewellery, the value of the US dollar (gold is largely priced in dollars) and real interest rates. Gold investing is also often described as a market to hedge against inflationary pressures, though this remains debated.
Launched in 2009, Bitcoin is a decentralised fungible digital currency. Neither governments nor institutions control or regulate the cryptocurrency, and market forces determine its value. According to CoinMarketCap, versus the US dollar, Bitcoin is the largest cryptocurrency, boasting a mammoth market capitalisation of US$547,268,219,828 (that’s 547 billion USD rounded).
Bitcoin transactions are recorded on a distributed ledger, referred to as a blockchain; it is not a tangible asset like gold but can be traded on exchanges and stored securely in wallets. It allows for faster and cheaper transfers, with transactions settled in minutes. It can also be used for international payments without the need for middlemen.
Gold's long track record of reliability and trustworthiness gives it an edge over Bitcoin. Meanwhile, Bitcoin's decentralised nature allows it to be traded without the need for middlemen or financial institutions, making it attractive to those looking for a higher degree of privacy.
Another significant distinction between gold and Bitcoin is the price volatility of each asset. As a physical commodity, gold's price is generally more stable than Bitcoin. In addition, Bitcoin's decentralised system makes its price more susceptible to manipulation.
Year to date, the price of Bitcoin versus the US dollar (ticker: BTC/USD) is up nearly 80%, while the price of spot gold (ticker: XAU/USD) is higher by about 10%. So, while both markets have risen, one is outperforming in 2023. The correlation coefficient between the two markets is +0.9, based on a 60-day rolling correlation coefficient. This means, on average, both markets tend to move in tandem most of the time. Both markets are also denominated in US dollars; therefore, the correlation is unsurprising. A rise in the US dollar’s value generally hurts demand for gold as the precious metal becomes more expensive, while a drop in the US dollar can boost demand for gold as it’s cheaper.
(Correlation Coefficient between XAU/USD and BTC/USD – Trading View)
Both XAU/USD and BTC/USD are also volatile markets. The Average Daily Range (ADR) over 21 days for BTC/USD is $1,006 at the time of writing, while XAU/USD is $28.71. Therefore, unsurprisingly, BTC, given the higher price, is a far more volatile trading instrument, and this would need to be considered if traded.
Gold and Bitcoin are easy to buy and sell. However, gold is a tangible asset with a long track record of reliability and trustworthiness. On the other hand, Bitcoin is an autonomous digital option to gold, making it a good investment for diversification. Both have pros and cons, and the individual must decide which is best for them.
It is well known that investors generally turn to the precious metal gold in times of market turmoil. It also helps with portfolio diversification, given its negative correlation with many major asset classes. So, when the equities market corrects, you’ll often see the XAU/USD price bid.
But is Bitcoin a safe-haven asset, or could it become one in the future? Depending on who you ask, you’ll likely receive a different answer. Cryptocurrencies like Bitcoin are often called safe-haven assets because they are not tied to any specific country or economy. As a result, many believe they can be used to store value and protect against economic uncertainty and volatility.
Gold and Bitcoin offer viable alternatives for those looking to store their wealth and diversify their investments. Gold has the advantage of being a physical asset with a long history of steadfastness and dependability, making it a secure way to store value. Bitcoin, meanwhile, offers a digital alternative with its decentralised structure and encrypted transactions providing greater privacy and security.
Ultimately, it is up to the individual to decide which fits their needs best. Gold may be the preferred option for those looking for a traditional form of investing. However, Bitcoin may be better for those seeking a digital alternative.
Regardless of which asset is chosen, it is important to understand the associated risks. Therefore, investors should research gold and Bitcoin and thoroughly understand the markets they’re trading. With the right knowledge and risk-management system, gold and Bitcoin can be a good way to store and grow wealth.
With FP Markets, you can trade Bitcoin and Gold via CFDs (Contracts for Differences). Consider opening a Trading Account with FP Markets today and trade the most popular cryptocurrency and commodity markets.
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