Bitcoin vs. Gold: The Future of Investment

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Thus far, the new decade has brought about a significant level of financial uncertainty. But at $2,033.43 per ounce, gold saw its greatest rise in value since the early 1980s. 

While gold has always been a reliable way for investors to diversify risk and secure purchasing power, lately we’ve seen a rise of an alternative investment opportunity requiring research and attention. Bitcoin and other cryptocurrencies have made people millionaires, which is enough to seduce many people into investing in crypto.   

Both gold and Bitcoin have shown to be volatile. Still, gold has long been considered a reliable hedge against inflation. But times have changed, and it may be time for investors to buck tradition and change too. 

Could Bitcoin hold the same value as gold did in the past? Or should investors stick with the tried and true? Let’s take a look. 


Bitcoin: A revolution or a mirage? 

As of September 2021, there are over 6,500 cryptocurrencies in circulation. However, not all cryptocurrencies act as potential replacements for fiat currency, and some of their uses are contextual. 

For instance, Solana, one of the most highly valued cryptocurrencies, was designed for businesses and decentralized financing. Dogecoin, which originated as a meme in 2013, is now one of the most popular cryptocurrencies. There’s no doubt many coins have shown strong potential but is it enough for forecasters to proclaim that Bitcoin and other cryptocurrencies are revolutionary as the new inflation hedge? 

As a commodity and currency, gold has its roots in ancient history. Bitcoin simply does not have the same esteem or reputation. Furthermore, the swaying temperament of cryptocurrencies can make them look like speculative vehicles with little science or reason behind them. This is especially true with many traders purchasing Bitcoin derivatives. 


When did it all become so muddled? 

The original purpose of blockchain was to provide a decentralized alternative to fiat currency. We should be able to use it daily for accounting purposes, conducting transactions and commercial trade. It is also meant to be secure to overcome the increasing risks of hacks and data breaches.  

Online financial platforms such as Payoneer and PayPal have made substantial progress in ensuring that consumers can use cryptocurrencies for sales and purchases. However, the biggest issue stunting this progress is crypto’s instability. 

What makes a fiat currency a viable vehicle for commercial trade is its stability. The dollar price of goods is fairly consistent and even predictable. If we were to use cryptocurrency to price items, we would never be able to predict how much these items would cost on any given day or week.        

What is even more disconcerting is how external influencers and celebrities can influence the value of cryptocurrency. This is evidenced by Elon Musk sinking Bitcoin’s value by nearly 8.5 percent through a single tweet.     

That’s precisely why we can’t use cryptocurrency as a legal tender. No one should be able to influence the price of bread by deliberately making provocative comments or posts on Twitter or Facebook. Nevertheless, despite these concerns, El Salvador became the first country to adopt Bitcoin as legal tender on a trial basis.

We can expect economists and financial experts to keep a close eye on this phenomenon. Nevertheless, one of the biggest differences between fiat currency and Bitcoin is the former is regulated while the latter isn’t. For some, this is one of Bitcoin’s biggest appeals, but it also makes it a risky investment.


What does the future hold?

There is a relatively new category of cryptocurrencies called stablecoins. According to Mark Cuban, stablecoins would be the first class of cryptocurrencies to be regulated. Stablecoins are designed to be tethered to a specific asset such as gold, fiat currency and other cryptocurrencies. 

It is too early to make any predictions on the success of stablecoins. However, the idea of regulated crypto isn’t a new concept. Debates have long been held involving the regulation of cryptocurrencies as public securities. Regardless, the future of crypto remains murky. 


The golden age isn’t over

Not many commodities have held their basic value as well as gold. Young adults may have championed Bitcoin as the new gold, but it simply doesn’t have the same reputation as a time-tested inflation hedge. It also doesn’t seem to have the potential to protect investors from inflation in the future. 

The fluctuation in the price of gold often reflects changes in the value of the fiat currency it’s tied to–not in the value of gold itself. Bitcoin’s high transaction fees and extreme capital gains taxes are deterrents for most seasoned investors, which is less of an issue with gold.

Another reason for the apprehension against crypto is the attitude of world governments. Many governments have put pressure on cryptocurrencies and discouraged people from using them as alternatives to official currency. In September 2021, for example, the Chinese government declared a ban on all cryptocurrency-related transactions and banned all citizens from working for crypto-related companies.


Bitcoin or gold?

There is always a degree of risk involved in investing. Nevertheless, if you want to invest as insurance against inflation or economic collapse, you should invest in gold. It’s a physical asset with virtually no counterparty risk. 

However, if you have expendable cash and you’re trying to capitalize on cryptocurrency’s volatility in the short term, then choose Bitcoin. Due to Bitcoin’s limited supply, you would not be remiss in trying to hold on to it long term if the value ever dips. 

In my opinion, you should invest in gold. Remember, Bitcoin’s legacy is just over a decade long and its future is still uncertain. In contrast, gold’s value is seemingly everlasting and more foolproof out of the two. 

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Kiara Taylor is an expert on the integration of finance and technology. She writes about the impact of both micro and macro trends on global finance.

  • Originally published November 4, 2021, updated April 26, 2023