Gold vs. Bitcoin Investing – Pros and Cons of Both

The benefits of Gold vs. Bitcoin investment have sprouted up significant debate among experienced investors during discussions around portfolio diversification. 

One comes from the ground and goes through flame before becoming aesthetically appealing. The other is a purely digital product of computers breaking down complex mathematical equations and only existing in ones and zeros.

Some gold bugs believe that Bitcoin is a poor investment choice because of its higher level of volatility. On the other hand, Bitcoin holders capitalize on gold’s poor returns to argue that it’s a poor investment choice.

While both parties are correct in their evaluation of these two assets, they often neglect that both gold and Bitcoin have several things in common. 

For instance, Bitcoin started with some of the unique properties of gold, including mining, meaning that you could digitally mine for Bitcoin the same way people mine for gold physically.

Because of these shared similarities, many gold investors didn’t have trouble diversifying their portfolios with Bitcoin. But where does one outshine the other? We’ll compare these two assets based on the following attributes:

Rarity/ Supply Limit

Both gold and Bitcoin are available in limited supply. Although no one knows how much gold the earth’s crust still holds, the US Geological Survey stated that there are still around 57,000 tons of unmined gold left. Presently, 190,040 tons of gold are available (estimate).

There are also speculations that NASA is looking into mining gold and other precious metals from asteroids. Although this is an excellent chance to eliminate gold scarcity, it’s still a long way coming.  

Bitcoin’s uniqueness reflects in the fact that it’ll never surpass 21 million in existence. The world’s supply of Bitcoins will deplete after Bitcoin miners successfully unlock all of them. At this threshold, the miners will still pay small fees to process their transactions.

History

Gold has positioned itself as a proven store of wealth for over 5000 years now. Because of this long history of stability, many investors have developed confidence in it. Gold has served as an acceptable means of payment in exchange for goods and services throughout cultures and generations.

Because of its history, gold remains a relevant economic asset, circulating several billions of dollars daily worldwide.

Bitcoin is barely 12 years old (started in 2009), so it is relatively new. Despite that, Bitcoin has gained popularity, value, and ROI more than most assets that existed long before it. Some investors use this excuse not to invest in Bitcoin.

Many even argued that Bitcoin and other cryptocurrencies might not stand the test of time. Others are worried about how governments worldwide will respond to this new currency that’s obviously out of their control. 

The investors ask questions like, “will they tax Bitcoin investors heavily?” “Will they criminalize Bitcoin holders?”

These, among several other questions, create uncertainty in the minds of most investors. Such investors will benefit more by investing in gold and other renowned precious metals.

Liquidity

Both gold and Bitcoin are liquid assets. The process involved in successfully converting your gold into the fiat currency of your choice as an investor is sometimes inconvenient. More often than not, you’ll need to take your gold bar to a gold or coin dealer in exchange for fiat money. It’s also possible to sell through an online auction house if it’s more convenient for you.

While Bitcoin is a virtual asset, you can also trade it for fiat currency from anywhere on cryptocurrency exchange platforms as long as you have an internet connection. The process of converting Bitcoin to fiat money is less complicated than that of gold; sometimes, it’s even unnecessary since some businesses now accept Bitcoin as a means of payment.

Volatility

Bitcoin is at the top of the volatility card deck. However, with this high volatility level and high reward, investors should expect massive price swings. This price swing is a top concern for many investors who intend to use the coin as a safe-haven asset.

Bitcoin’s volatility also means it is less stable than gold, which is why most people do not consider it a reliable store of value. Hopefully, the coin will be more stable in the future and will be a more widely acceptable fiat alternative.

Gold is also volatile, but its price swings come nowhere close to what Bitcoin and other digital currencies experience. Therefore, more investors will consider gold as a safer haven asset.

Selling and Storing

Gold is a tangible commodity; hence, storing it requires a significant amount of physical space. You’ll also need to keep it in a secure location, away from prying eyes. Investing in gold ETFs can resolve this problem. 

In the same light, selling off your gold asset will require physically meeting the buyer or paying for delivery service if the person stays in a different state, town, or continent.

In contrast, Bitcoin is a digital asset that doesn’t require physical storage space. Hence, it is easier to store Bitcoin using digital wallets. These wallets can hold as much Bitcoin as possible at no extra cost. It’s also easier to sell Bitcoin from anywhere globally via cryptocurrency exchanges, but these transactions require some fees as coin dealers do.

It’s also harder to steal Bitcoin from your digital since it runs on blockchain and cryptography technologies. Also, blockchain technology encrypts and hides your personal information.

Practical Uses

Gold has several applications, especially in the fashion, IT, and consumer electronics industries. Its application also extends to medicine and dentistry due to its therapeutic features. The shiny and durable qualities of gold are what make most people consider the most valuable precious metal.

Bitcoin has a more extensive user base, but its use and demand are primarily speculative and vaguely defined. However, it is becoming a more acceptable currency for buying goods from online and local stores.

Although it is easier to find someone interested in buying your gold, it is no longer an acceptable currency for many businesses nowadays.

Return on Investment (ROI)

Bitcoin outshines Bold in terms of ROI. Bitcoin hit almost $20,000 in 2017 but dropped value to about $4,000 a year later. Currently, the Bitcoin price is rising again and has nearly reached $50,000 as of August 2021.

The ROI on Bitcoin has proved to be much higher than gold, thanks to its high risk. Gold investing is low-risk and often comes with lower ROI.

Pros and Cons of Gold vs. Bitcoin – Summary

Now that we understand how these assets differ, here’s a summary of the pros and cons of each:

Gold

Pros

  • Much less volatile
  • Tangible asset
  • Established history as a store of value 
  • Higher market cap
  • Inflation hedge

Cons

  • Lesser potential returns
  • Easier to steal since it’s tangible
  • Sending and receiving is difficult
  • Prone to market manipulation
  • Requires physical storage facility, making it harder to store

Bitcoin

Pros

  • Easy to store
  • Guaranteed user anonymity
  • Higher potential returns
  • Faster transaction
  • Harder to steal
  • Lower inflation risk
  • High liquidity

Cons

  • Extremely volatile
  • Intangible asset
  • Subject to online hacking
  • Poor store value

Gold investing is probably the safest option if you’re nearing retirement and thinking of how to store your wealth for yourself and the generations coming after you. 

Although the reward is comparatively low, there’s a shallow risk of depreciation. You don’t have to waste your retirement worrying about the market volatility that comes with Bitcoin.