How does Bitcoin compare to gold: analysing similarities and differences?
In a day and age where people are trying to make as much money as possible amid high inflation rates, many people and professional traders have ditched traditional low-interest personal savings accounts in favour of investments. Two of the most popular investments are Bitcoin and gold.
If you’re considering investing but aren’t sure which is best for you, we’ve put together everything you need to know below.
What is Bitcoin?
Launched in 2009, Bitcoin signified a new era in finance and investing. Famous for being the first decentralised cryptocurrency, Bitcoin is a digital currency that uses blockchain technology and requires no control by banks or governments.
Why do people invest in gold?
Gold is nothing new. People have been trading and investing in gold for thousands of years as a means of exchanging and holding onto wealth.
Gold historically performs well during market recessions as it maintains its value even in difficult economic times. For this reason, many investors like to buy gold as a hedge against recessions and inflation.
What are the similarities between Bitcoin and gold?
You might think that bitcoin and gold couldn’t get further apart. After all, one is tangible and the other is the opposite. Here are just some ways they’re alike.
- They’re liquid: Both assets are highly liquid. Driven by a large demand for both, gold and Bitcoin are easy to buy and sell in a hurry.
- No interest required: Both Bitcoin and gold investments pay no interest. Rather than accruing interest, they’re valued on their sale value.
- They aren’t freely printed, like money: Unlike paper currencies, both Bitcoin and gold have to be mined. This is in complete contrast to paper currency, which can be printed.
- Both hedge against inflation: Both Bitcoin and gold are completely disparate to the stock markets and interest rates. This means that they’re a good hedge against equities as they’re more likely to hold their value in the event of a market crash.
What are the differences between Bitcoin and gold?
- Bitcoin has no intrinsic value: Gold – as well as being a liquid asset – has other purposes. For example, it’s used in jewellery and as a component. Bitcoin has no intrinsic value in that its value depends entirely on market forces. If the market drops, Bitcoin could be rendered worthless.
- Bitcoin has no storage costs: Other than a digital wallet on a trading app or platform, Bitcoin doesn’t need to be stored. It’s quick and easy to send and receive. Gold needs secure storage and transportation.
- Volatility: Gold values remain relatively stable. On the other hand, Bitcoin is hugely volatile, making it a risky investment.
- Scarcity: Bitcoin’s supply is reduced every four years due to ‘halving’. On the other hand, gold is being mined every year.
Is Bitcoin a better investment than gold?
The optimal investment choice depends greatly on your individual risk tolerance, the amount of capital you have available, and your threshold for acceptable loss. Considering Bitcoin’s inherent volatility, which can lead quickly to higher profits or less, investing in gold might be a suitable option for those with a limited risk appetite.
