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When uncertainty rises, investors look to safe, stable assets to hedge against downturns. Gold has historically been the go-to for risk-averse investors. However, Bitcoin, often termed ‘digital gold’, is increasingly entering the conversation. The two share similarities but also distinct contrasts that pose unique opportunities. Read on to learn how gold and Bitcoin compare and which deserves a place on your watchlist.
Gold has been a cornerstone of finance and investment for centuries. Used as a medium of exchange in ancient civilisations, this precious metal is now globally recognised as a stable store of value. Gold has a finite supply and is in constant demand. It’s used in everything from jewellery and electronics to dentistry and aviation.
The price of gold isn’t tied to the performance of an economy, sector, or company, unlike fiat currencies or a stock market investment. Its finite supply, combined with its tangibility and resilience against market forces, mean gold is regarded as a safe-haven asset and inflation hedge. In turbulent and uncertain times, like a market crash or in the face of rising interest rates, gold usually retains or grows in value as stocks and indices fall.
Bitcoin was introduced in 2009 by an anonymous figure known as Satoshi Nakamoto. Deemed the first mainstream digital currency, Bitcoin paved the way for an entirely new asset class: cryptocurrency. Built on a decentralised ledger known as a blockchain, Bitcoin has been one of the best-returning assets of the past two decades; it began trading at under $0.10 in 2010 and reached a high of over $68,000 in late 2021.
Like gold, Bitcoin has a finite supply—only 21 million BTC will ever exist. Being entirely digital means it has no tangible utility outside of an investment or currency. However, unlike gold, it’s easily divisible and portable, leading to its growing use as a medium of exchange.
Gold is one of the most liquid assets that exists today. Physical gold holdings by investors and central banks are estimated to be roughly $4.8 trillion (USD), with approximately $132 billion in trading volume each day (Gold.org).
Gold is easily traded through centralised exchanges, brokerages, and in person. However, gold is subject to commodity trading hours, meaning weekend trading is generally off the cards.
Bitcoin is less liquid but still the most liquid of all digital assets. It currently has a market cap of $520 billion, with around $13 billion in daily volume (CoinMarketCap). BTC is traded 24/7 and doesn’t necessarily involve a centralised exchange, making it more flexible than gold.
Gold is no stranger to volatility, especially around key market news like monetary policy announcements. These swings are typically only short term fluctuations; over the long term, the valuation of gold is relatively stable.
Bitcoin, on the other hand, is notoriously volatile. With much less daily trading volume than gold, Bitcoin prices can move erratically. While this does offer substantial opportunities for profit, it also increases the risk of loss.
There’s no denying that Bitcoin offers greater profit potential than gold. From a low of around $15,500 in November 2022 to a high of roughly $31,800 in July 2023, BTC climbed over 105%. Historically, gold has rarely, if at all, increased by more than 50% in a year; between 1971 and 2022, its average annual returns sat around 7.78% (Statista).
There’s a trade-off here. Gold is more stable and appeals to those looking to protect their investment portfolio rather than make rapid gains. Bitcoin, meanwhile, primarily presents opportunities for growth, though can act as a safe haven.
For the average investor, there are three primary routes to invest in gold: physical gold, gold exchange-traded funds (ETFs) and mutual funds, and gold mining stocks. Each carries its own pros and cons; mining stocks, for example, offer further diversification but expose the investor to the unique risks of the individual company. Most traders use Contracts for Difference (CFDs) when trading gold, which offers leverage and the chance to generate returns from falling gold prices.
Bitcoin is largely accessible to anyone with an internet connection. Those looking to buy Bitcoin can do so through a centralised/decentralised exchange, a peer-to-peer marketplace, or even at a Bitcoin ATM.
Gold is a well-regulated asset overseen by both national and international bodies. These regulations cover everything from quality standards to trading practices. They’ve helped to establish gold as a trusted and reliable asset, with many protections in place for investors and traders.
Given Bitcoin’s infancy, it’s much less regulated than gold. While regulatory oversight has grown alongside the crypto market’s popularity, it’s still a relative Wild West compared to gold. This can offer more freedom but also introduces a level of risk and uncertainty when looking to buy Bitcoin.
Gold and Bitcoin carry their own set of risks. While gold has been historically stable, it can be unpredictable, especially during acute geopolitical tensions or sudden economic downturns. Tensions may be resolved, or the economy may quickly recover, leading to further volatility.
Bitcoin’s risks are more varied, stemming from its volatility, regulatory uncertainty, and the investor’s vulnerability to cybersecurity threats. Its value is also more susceptible to sentiment-driven fluctuations than gold.
So, Bitcoin vs. gold: which deserves a spot on your watchlist, and which is the better investment?
Gold is a time-tested asset, generally offering stability and a hedge against economic uncertainty. With growing global uncertainties affecting Wall Street’s sentiment, like conflict between Russia and Ukraine, restrictive monetary policy from the Federal Reserve, and recession fears, there’s a strong case to be made for increased gold demand in the coming years. However, as noted, acute issues could lead to considerable volatility.
Bitcoin, on the other hand, is more unpredictable. While it’s increasingly being seen as a safe haven, there are also many occasions where it correlates with risk-on instruments, like the S&P 500 and Nasdaq Composite. Its inherent volatility and growth potential will open up plenty of trading opportunities going forward.
Ultimately, the decision to include either in your trading or investment strategy comes down to your risk tolerance and desire for stability. One thing is clear: whether it’s the allure of gold or the dynamism of Bitcoin, neither can be ignored in today’s market.
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