Bitcoin vs Gold: Is Bitcoin Better than Gold?

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Updated: 23rd Feb 2021
Written by Sean Graytok
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Bitcoin has been called Gold 2.0 and is often referred to as “millennial gold.” Bitcoin shares many of the same characteristics that make gold special, but does it deserve the comparison?

This article will explore the Bitcoin vs gold debate and help you decide which is better.

Why is Bitcoin Compared to Gold?

Investors turn to gold as a store of value during periods of high or anticipated inflation. Fiat currencies like the U.S. dollar are subject to inflation because its supply can increase at the government’s discretion.

The dollar’s purchasing power decreases with rising inflation, so investors turn to inflation-hedged assets to preserve their wealth. These include scarce assets that cannot be created out of thin air, such as precious metals, rare art, and luxury real estate.

These were some of the only deflationary havens for investors before Bitcoin’s launch in 2009. However, more investors are running to Bitcoin in the new digital age of money.

Related: How to Buy Bitcoin

Is Bitcoin Better than Gold?

According to Tyler Winklevoss, co-founder of the Gemini crypto exchange and one of the first well-known Bitcoin billionaires, “Bitcoin is better at being gold than gold — and not just incrementally, but by order of magnitude or 10X better.”

Tyler is claiming that Bitcoin optimizes gold’s parameter because it is programmable, “smart money.” Let’s look at some of the characteristics that make gold valuable and see how Bitcoin stacks up.

Bitcoin vs Gold: Characteristics

Scarcity

In theory, gold holds value because there is a fixed amount of it, but the supply of gold is actually unknown. Two-thirds of its above-ground supply has been mined since 1950, and improvements in mining technology will continue to increase its supply.

Bitcoin’s supply is capped at 21 million and truly has a “fixed supply.” Scarcity is one of the most important factors for deflationary assets. Bitcoin is definitively superior to gold in this department.

Learn More: How Many Bitcoin Are There?

Portability

Bitcoin can be sent anywhere in the world by tapping a few buttons on your phone. On the other hand, gold weighs 25lbs per bar, and it is difficult to transport.

Bitcoin’s high portability distinguishes it from gold because any sum of money can be carried on a flash drive, while it would take trucks to move large amounts of gold.

Divisibility

You can purchase as little as .00000001 bitcoin compared to gold’s rigid quantities. Bitcoin’s superior divisibility gives agency to the investor to choose the specific amount they want to buy, unlike gold that comes in predetermined amounts.

For example, let’s say an owner of gold only wants to sell ¼ of his gold bar. Dividing the bar up into fourths takes much more time and effort than simply entering the bitcoin’s fractional amount to trade on an exchange.

Durability

Bitcoin and gold are both very durable, but gold can be scratched and dented when not treated properly. On the other hand, Bitcoin is virtually indestructible because it is software.

Gold can also be damaged or discolored when exposed to elements, such as chlorine. There have not been any documented encounters between chlorine and Bitcoin, but time will tell.

Adoption

This characteristic speaks to the number of people that agree on the asset’s value. Gold has been around since 700 B.C. and currently has a market capitalization of $9 trillion.

Bitcoin’s popularity is growing. Its “market cap” is slowly approaching $1 trillion as institutional money flows out of gold and into Bitcoin.

Remember, the only reason gold is valuable is because we agree that it’s valuable. It does not have any intrinsic value, but enough people believe in its future value to make it desirable. Bitcoin works the same way.

Storage

Gold requires a safe or vault to keep safe while Bitcoin can be held in encrypted, digital wallets. These wallets are known as either “hot wallets” or “cold wallets.”

There are inherent trade-offs when storing bitcoin in both hardware and software, but the software offers added layers of security superior to a physical lock and key.

Bitcoin owners opting for maximum security may use “seed phrases” to back up their Bitcoin funds on the blockchain.

For example, a unique, random list of 12-18 words can secure their bitcoin on-chain, and only those with the seed phrase can access the bitcoin.

Difficult to Counterfeit

Bitcoin is impossible to counterfeit by the laws of mathematics. Cryptography is a proof-based discipline of mathematics that is used to guarantee security on the blockchain.

Gold is easy to counterfeit and common around the globe, just ask your local pawn shop.

Gold Bugs Warming up to Bitcoin

A gold bug refers to persons who are extremely bullish on the commodity gold as an investment and as a standard for measuring wealth.

Many gold bugs have been outspoken on Bitcoin’s problem as a store of value, but others are warming up to the cryptocurrency.

What Are Famous Hedge Fund Investors saying about Bitcoin?

The rise of bitcoin has garnered attention from the Wall Street Elite. These behemoths command traditional markets, and some of the most well-known hedge fund operators in the world. Let’s see what they are saying about Bitcoin.

Stanley Druckenmiller

Famous hedge fund manager Stanley Druckenmiller said that he expects his bitcoin bet to “work better” than gold, reversing his statement in 2018 when he said he didn’t want to own the cryptocurrency.

He is bearish on the dollar for fears of inflation and “strongly” recommends bitcoin as an asset class for a store of value.

Paul Tudor Jones

The longtime hedge fund manager Paul Tudor Jones announced that he has 2% of his assets in bitcoin. Wall Street is witnessing the historic “birthing of a store of value” through bitcoin.

He added, “It’s a great speculation,” in reference to its potential asymmetric returns. Jones believes that the trust in Bitcoin will continue to rise each day that it survives.

Ray Dalio

While not a classic gold bug, the legendary founder of the world’s biggest hedge fund Ray Dalio has switched his original, harsh stance on Bitcoin, calling it a “gold-like asset alternatives.”

While he still prefers gold to Bitcoin, he admitted in November 2020 that he “might be missing something about Bitcoin” and “would love to be corrected.”

Will Bitcoin Replace Gold?

Many believe that Bitcoin and gold can coexist as respective stores of value. However, Bitcoin bulls like Anthony Pompliano believe Bitcoin will be the faster horse, and it won’t even be close.

Gold ETFs experienced massive outflows in 2020. Financial commentators believe the money flowed into Grayscale’s Bitcoin Trust (GBTC) and the crypto market.

JP Morgan commented on millennials’ preference to Bitcoin over gold and how that will impact the race of alternative currencies moving forward.

Some argue that just because money is flowing out of gold does not mean the same money is flowing into Bitcoin.

Bitcoin vs Gold Volatility

Bears argue that Bitcoin’s volatility disqualifies it from the “store of value” asset class. Bulls acknowledge the price swings but point to bitcoin’s fixed supply as its driving force to preserve wealth.

Bitcoin experiences periods of bear markets like every other asset, but it was the last decade’s best-performing asset. However, it is reasonable to claim that bitcoin is more of a speculative investment than a classic store of value when looking at its chart.

Gold vs Bitcoin FAQs

Is Bitcoin more valuable than gold?

Bitcoin and gold are not intrinsically valuable. Their inherent value is based on a shared belief network. Therefore, to answer if Bitcoin is more valuable, you should define the parameters that make gold valuable and compare how each currency satisfies them.

Is Bitcoin safer than gold?

In terms of storage, Bitcoin uses software and gold uses hardware. There are safety trade-offs to each form of storage, and preference will vary depending on who you ask.

In terms of a safe haven against inflation, Bitcoin is superior to gold because it is the only known commodity in the universe with a deterministic and fixed supply.

In terms of safety against price volatility, gold is far less volatile than Bitcoin, which has had several pullbacks of more than 80%. However, bitcoin’s potential upside is higher than that of the precious metal.

Is it smart to invest in Bitcoin?

The Winklevoss twins believe a large purchase of Bitcoin will be “the trade of the century,” and predict that it will reach more than $500K per coin.

Other Bitcoin bulls call it the best risk-adjusted, asymmetric trade that investors can make because of its unparalleled potential upside.

Related: Is Bitcoin a Good Investment?

Pro Tip: Buy Bitcoin on Gemini

We recommend our readers to buy and sell bitcoin on Gemini. It was founded by the Winklevoss twins in 2014 and is one of the most secure exchanges on the market. Read our review on Gemini to see if it’s right for you.

Ready to Invest in Crypto? See our roundup of the Best Cryptocurrency Exchanges

Bottom Line: Bitcoin vs Gold

Young money is choosing Bitcoin. A recent survey by deVere Group found that twice as many younger investors prefer bitcoin to gold as a store of value. The world is shifting towards tech, and the millennials are ready for the next iteration of money.

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Sean Graytok
Sean Graytok
Sean is a lifelong student of the financial, media, and marketing industries. He is a Generation Z investing expert and is on a mission to empower investors to make the most of their money.