It’s been a great time to own Bitcoin (BTC -0.03%). Since the beginning of 2023, the top digital asset is up 307%. The approval of a spot exchange-traded fund (ETF) and the April halving were the latest catalysts.
Investors might be surprised to learn that gold prices are also approaching all-time highs thanks to bullish sentiment. Bitcoin and this precious metal are often compared. But the leading cryptocurrency is the better asset.
How Bitcoin and Gold Are Similar
Market participants like to compare Bitcoin to gold, so it may be important to first understand the similarities between the two.
Investors should beware of shortages. Bitcoin’s software has a 21 million coin limit engraved into it. And there is a fixed amount of gold in the Earth’s crust.
The price of an asset with a fixed supply should, in theory, rise as demand also increases. This basic economic principle helps explain why gold has long been considered a popular store of value.
Moreover, there are certain advantages here too. Gold is primarily used for jewelry, but is also present in certain industries. Similarly, Bitcoin’s value comes from the fact that it is a fully decentralized network with no single entity, reducing transaction costs when sending money to anyone around the world.
Advantages of Bitcoin
At a high level, it is easy to see that both Bitcoin and Gold are scarce. Moreover, both are useful in different situations. But dig deeper and it’s easy to see why the top cryptocurrency is a great investment.
Back to the scarcity topic. Investors may think that gold has a fixed supply cap, but that’s far from the truth. According to the U.S. Geological Survey, 77% of all gold in the earth’s crust has been mined. As a result, there is still a significant amount of gold available to mine.
If for any reason the demand for gold were to surge in a short period of time, mining companies would be motivated to expand their operations and invest aggressively to target hard-to-reach regions around the world. This means that gold delivery schedules may change depending on demand trends.
Here’s where Bitcoin stands out: it is absolutely limited. The aforementioned supply cap of 21 million coins is highly unlikely to change unless Bitcoin stakeholders want to completely undermine the value proposition of the entire network. Bitcoin’s supply schedule cannot be changed, so its price is usually unstable.
Compared to gold, which is a physical asset, Bitcoin is a digital asset, which means it is easier to store and carry. Bitcoin can also be divided into smaller units and still be accepted for certain transactions. For example, you go to a restaurant and take a piece of gold to pay.
Investors should also not ignore the argument regarding store of value. This is perhaps the aspect most commonly considered when comparing Bitcoin to gold, and it is here that Bitcoin shines brighter than the precious metal.
After all, saving and investing is about increasing purchasing power over time. Over the past five years, the price of Bitcoin has increased 718%, meaning a $1,000 investment in June 2019 would be worth almost $8,200 today.
Yet the price of an ounce of gold has only increased 73% over the same period. And that period included major disruptive developments, including the pandemic, inflationary pressures, rising interest rates, and general economic uncertainty.
Bitcoin and gold will continue to be compared. But I think the major cryptocurrencies will be the better investment options in the next 5 to 10 years.