How does Bitcoin differ from gold?

Bitcoin on a smartphone in front of two red circles

Cryptocurrency investors argue that Bitcoin is the digital equivalent of investing in gold, in the sense that it is a hedge against inflation and turbulence in the financial markets. In other words, investors have long invested in gold as a means to protect their investments from losing value when the economy is in a slump. Cryptocurrency investors say that Bitcoin offers the same protection, hence Bitcoin sometimes being referred to as digital gold. 

Bitcoin and gold share a few characteristics but also differ vastly in nature. 

Similarities

  • Limited supply 
  • Both exist outside of traditional government and monetary systems
  • Relatively low correlation between other asset classes such as stocks and bonds, although Bitcoin has in the past been impacted in the short term by movements in these markets
  • Both used as a hedge against inflation and market turbulence

Differences 

  • As a digital currency, Bitcoin’s use cases and potential for future growth extend beyond a mere hedge investment 
  • Bitcoin has shown unprecedented growth in the last decade, outstripping the returns of any other asset in history, while gold has shown relatively meagre returns. Some argue that this stability counts in gold’s favour 
  • Bitcoin is more volatile than gold. The leading cryptocurrency, along with the rest of the cryptocurrency market, is prone to collapses in price, often dropping by 20% or more at a time. It’s this severe reaction to market sentiment that keeps many investors erring on the side of caution, rather parking their money in gold or other traditional investments such as bonds or equities
  • Gold’s market capitalisation, also referred to as market cap, which essentially means the value of all the unmined gold owned globally, is much larger than the market cap of Bitcoin. Market cap is an indicator of the size of a company or market, and therefore the stability and future prospects of a certain market. It should be noted that gold as an investment has been around for centuries while Bitcoin is still considered to be in its infancy, only being created in 2009.  

Both Bitcoin and gold are used as an investment tool to protect investors against market volatility but that’s generally where the similarities end. Bitcoin is a scarce digital currency and gold a scarce commodity – two vastly different assets. 

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