Bitcoin vs gold: can digital gold beat its physical counterpart?

For centuries, gold has been the undisputed champion of safe-haven assets, a reliable store of value trusted by civilizations to hedge against inflation, economic uncertainty, and currency debasement. But in the 21st century, a new contender has emerged: Bitcoin. Often dubbed "digital gold," Bitcoin shares many of gold's core attributes—scarcity, durability, and decentralization—but enhances them for the digital age.

How do the two assets compare? Read on as we compare gold and Bitcoin as tradeable assets. 

Bitcoin vs Gold Key Properties Comparison

To determine which asset is a superior store of value, we need to analyze them based on the fundamental properties of money.

Scarcity: Relative vs. Absolute

• Gold: Gold's scarcity is relative. While it's difficult to find, new gold is mined every year, increasing the total supply by roughly 1-2% annually. Furthermore, future discoveries or even asteroid mining could dramatically increase its supply.

• Bitcoin: Bitcoin's scarcity is absolute and enforced by code. There will only ever be 21 million bitcoins. This predictable and finite supply is one of its most compelling features as a hedge against the infinite printing of fiat currencies.

Divisibility and Portability: The Digital Advantage

• Gold: While gold is divisible, breaking down a gold bar into smaller units is impractical and expensive. Transporting large amounts of gold across borders is a logistical nightmare, often involving high security, insurance costs, and regulatory hurdles.

• Bitcoin: Bitcoin is effortlessly divisible down to eight decimal places (the smallest unit being a "satoshi"). You can send a fraction of a cent's worth of Bitcoin across the globe in minutes. A billion dollars worth of Bitcoin can be stored on a tiny USB drive and carried in your pocket, or simply memorized as a seed phrase.

Verifiability: Certainty in a Trustless World

• Gold: Verifying the authenticity of gold requires specialized equipment and expertise to test its purity and weight. Counterfeit gold bars (such as gold-plated tungsten) are a real and persistent threat.

• Bitcoin: Anyone can verify the authenticity of a bitcoin transaction by running a node on the Bitcoin network. The public blockchain provides a transparent and immutable ledger of every transaction ever made, eliminating the need for trust in a third party.

Bitcoin vs Gold as an Investment

While both assets are seen as safe havens, their performance and behavior as investments are vastly different.

Historical Performance of gold and Bitcoin

Gold has been a safe-haven asset with its price increasing with inflation or economic uncertainty. The price remains relatively flat when the economy is doing well. Gold peaked at about $1,919/Oz in 2011 as the economy recovered from the 2008 financial crisis. However, as the economy improved, gold’s appeal dropped. The metal enjoyed a resurgence after the COVID crash in 2020 and peaked at $2,150 in 2024. As a result, the value of gold increased by nearly 15% in the 13 years between 2011 and 2024. 

Bitcoin, meanwhile, has seen massive growth during its relatively short lifespan — figures that are hard to comprehend with any other asset class. In 2011, Bitcoin was still trading in the single digits, and was still not seen as a serious asset class. 

In 2011, Bitcoin was just getting started and wasn't even at its price discovery phase. At the same time, gold was a well-established market that had been around for centuries. Nonetheless, in a very short time, Bitcoin has already reached a position to challenge gold. 

Role in a Portfolio

• Gold: Traditionally, investors allocate a small portion of their portfolio to gold as a hedge against stock market downturns and inflation. It often has a low or negative correlation to equities, providing a stabilizing effect during times of crisis.

• Bitcoin: Bitcoin's role is still evolving. While it has shown potential as an inflation hedge, its high volatility and correlation with tech stocks in recent years have led some to view it as a "risk-on" asset. However, many investors are increasingly seeing it as a long-term store of value with asymmetric upside potential—an asset that could capture a significant portion of gold's market share over time.

Market Capitalization and Growth Potential

• Gold: The total market capitalization of gold is estimated to be around $15 trillion. As a mature asset, its potential for exponential growth is limited.

• Bitcoin: Bitcoin's market cap is currently a fraction of gold's. Proponents argue that if Bitcoin were to capture even a portion of gold's market cap as "digital gold," its price would have to increase by multiples of its current value. This suggests a much higher growth potential, albeit with higher risk.

Characteristics of gold and Bitcoin

Gold has been accepted as a tangible store of value for centuries. It's a physical asset that can be exchanged without any oversight and stored in your home or any safe location you believe is fit. You can physically hold the gold you own. However, these features also make gold less desirable. It requires physical security, and takes time to transport. Gold is also a scarce asset that costs money to mine, giving it additional value. Yet, no one knows what the actual supply of gold is. 

Bitcoin, on the other hand, is fully digital. You can't physically hold your Bitcoin, and it’s intangible. That makes Bitcoin extremely easy to store and move around. The supply is also capped at a fixed 21 million Bitcoins, as is the number of new Bitcoins mined daily. Compared to gold, Bitcoin’s supply is both scarce and predictable. On the other hand, the digital nature of Bitcoin makes it susceptible to cyber-security threats. 

Additionally, Bitcoin is highly fungible, allowing you to obtain 1 BTC and divide it into any desired amount.  The same can't be said for gold. You’d need the help of a goldsmith to divide your gold, and there are limits to the extent you can physically divide gold. . 

Trading gold vs Bitcoin

Bitcoin offers a remarkably accessible entry point, as it requires nothing more than an internet connection and access to a trading platform. It boasts a low barrier to entry, making it an appealing option for new traders. All that's needed is a stable internet connection and a reputable exchange to trade 24 hours a day, seven days a week.

On the other hand, you can own gold simply by purchasing the physical metal at a store. This is much simpler than getting started with Bitcoin. Even so, most people don't buy and store physical gold to trade. To trade gold, you’d have to register with an exchange that has it listed in your country. So, the barrier to entry with gold is a little higher when trading on an exchange. 

Regulations

The gold trading industry is tightly regulated, with well-established protocols governing its exchange, storage, and taxes across all nations. Although this is reassuring for many traders, it can restrict growth.

Similarly, Bitcoin has also gained acceptance, with regulators giving clear directions in the last few years. While most countries have embraced Bitcoin, some still try to restrict or outright ban it. The regulatory uncertainty in some countries could be a barrier to Bitcoin’s adoption. However, one recent catalyst for adoption was the approval in 2024 of a Spot Bitcoin ETF. The ETF’s arrival opened up Bitcoin to many new traders and solidified Bitcoin’s position as a reliable asset class. 

Future of gold and Bitcoin

Gold has little to prove. It's stood the test of time as a reliable store of value and a hedge against inflation. Gold’s growth prospect is limited, but it's steady. With its usage in electronics increasing, gold’s utility could continue to rise. 

Bitcoin, meanwhile, shares some similarities and differences. While Bitcoin has seen a meteoric rise in one short decade, there’s so much room to grow. With its limited supply and fast transfer speeds, Bitcoin’s value proposition is expected to only rise in the coming years as it gains wider acceptance. 

Frequently Asked Questions

1. Is Bitcoin more volatile than gold? Yes, significantly. As a younger, smaller asset class, Bitcoin's price is subject to much larger swings than gold's. While this volatility creates opportunities for high returns, it also comes with greater risk.

2. Can governments ban Bitcoin like they banned gold? While governments can attempt to regulate or restrict access to Bitcoin, an outright ban is much harder to enforce than it was for gold. In 1933, the U.S. government made it illegal for citizens to own gold, forcing them to turn it in. Because Bitcoin is digital and decentralized, it is much more difficult to confiscate. Users can maintain self-custody of their assets, accessible only with a private key.

3. Which is a better hedge against inflation? Both have been touted as inflation hedges. Gold has a long history, but its performance during inflationary periods can be mixed. Bitcoin, with its absolute scarcity, is theoretically a perfect hedge against currency debasement. In recent years, it has performed well during periods of high monetary expansion, but its history is still too short to make a definitive conclusion.

4. Should I own Bitcoin or gold? Many financial advisors now suggest that a diversified portfolio could include a small allocation to both. Gold provides stability and a long track record, while Bitcoin offers higher growth potential and a hedge against the digitalization of finance. The right allocation depends on your individual risk tolerance and investment horizon.

The final word

The debate between Bitcoin and gold is not just about two different assets; it's about two different worldviews. Gold represents the old world—a tangible, time-tested store of value that has anchored our financial system for millennia. Bitcoin represents the new—a digital, decentralized, and technologically superior asset designed for the internet age.

While gold's legacy is undeniable, Bitcoin's superior properties in terms of scarcity, divisibility, portability, and verifiability make a compelling case for it being the successor to gold as the world's premier store of value. Gold will likely always have a place in a diversified portfolio, but as the world becomes increasingly digital, Bitcoin's advantages are becoming too significant to ignore. For long-term investors looking to preserve wealth in an uncertain future, "digital gold" may be the real safe bet.