Bitcoin vs. Gold: Which One Is a Better Investment?

It’s been 15 years since Bitcoin (BTC 2.59%) first launched. Since then, it has gone on a historic run to become the most productive asset of the 21st century.

Over the course of this journey, investors have had a hard time categorizing what Bitcoin is and why it has merit as an investment. Perhaps the most well-understood and effective narrative to take hold is that Bitcoin is akin to digital gold.

While comparisons to gold help us categorize Bitcoin’s multi-faceted use cases, is it actually a better asset than the age-old precious metal? With a little digging, it’s clear that one asset outshines the other.

Image source: Getty Images.

Tracing gold’s roots

Gold’s utility over the centuries has changed considerably. Primarily used as a currency for millennia, it eventually took on the role of a safe haven asset during the tumultuous economy of the 1970s. Amid double-digit percentage inflation, gold rose to prominence as the most viable means for individuals to preserve wealth and combat an eroding dollar.

To gold’s credit, it did a pretty darn good job. During the 1970s, gold rose from just under $300 an ounce to nearly $2,600, a monumental 700% increase and more than enough to outpace raging inflation.

It’s from this decade’s performance that the narrative of gold as a store of value likely has its roots. Yet the reason this narrative has persisted remains less clear.

When accounting for decades of inflation since the 1970s came to a close, gold’s performance has been relatively lackluster. From 1980 to the end of 2023, gold’s total inflation adjusted return is an underwhelming -4%. So much for being an inflation hedge.

Making the Bitcoin comparison

There are likely several factors contributing to gold’s demise, such as a generally stronger dollar compared to the 1970s as well as more moderate interest rates that have pushed investors to own dividend-producing assets. While pinpointing the exact culprit remains challenging and a task better suited for macroeconomic experts, what is clear is that the predominant narrative of gold as a store of value is fading.

Admittedly, since we don’t have decades worth of data for Bitcoin, it might be a little unfair to measure gold’s performance over 50 years. So, let’s look more recently.

During the past decade, gold has an inflation adjusted return of 30%. On an annual basis that’s a measly 2%. Then there’s Bitcoin. When accounting for inflation, the world’s first cryptocurrency is up more than 3,700% with annual returns of 44%.

Regarding this point, gold advocates or crypto critics usually point out that on Bitcoin’s journey of historic price appreciation there has been significant volatility. Touché. Yes, Bitcoin’s volatility is undoubtedly something worth noting.

However, volatility is a double-edged sword. The same volatility that causes Bitcoin to lose three-quarters of its value every few years is the same volatility that helped propel it to become the best-performing asset of the century. Not to mention, there is clear data proving that Bitcoin’s volatility is diminishing as the asset class matures.

When zooming out, Bitcoin’s volatility is actually a feature. For investors with the goal of investing over years and decades, not months, few better options boast as impressive of a track record and hold as much long-term potential as Bitcoin.

The real reasons Bitcoin is better than gold

As clear as Bitcoin’s outperformance of gold is on a price basis, there are several other characteristics that make it a superior store of value built for the future.

Most apparent would be its finite supply. While gold is presumed to be finite, the reality is that its supply can be influenced by mining activities and new discoveries. Conversely, Bitcoin has a set limit of 21 million coins that no single person, entity, or group will ever be able to change.

This leads us into what could be the most attractive characteristic of Bitcoin and why it should be considered a superior form of gold — decentralization and security.

Bitcoin operates on a blockchain maintained by computers around the world, so investors can rest assured that their hard-earned money is secured behind an impenetrable network no government will ever be able to devalue or confiscate — something gold can’t claim. Look up Executive Order 6102 if you aren’t familiar with what I’m referring to.

Bitcoin’s investment proposition becomes all the more clear in an increasingly digital world and one where fiat currencies are consistently debased. Offering its holders true financial sovereignty devoid of monetary manipulation, Bitcoin has not only proven capable of unseating gold as the superior store of value, but it has become the ultimate asset to secure and build wealth in today’s world.