These two assets seem to be constantly compared.
Had a great time as an owner Bitcoin (BTC 0.87%)Since the beginning of 2023, the top digital asset has surged 307%. Spot exchange-traded fund (ETF) approval and April Halvingwas the most recent catalyst.
Investors are also Close to the all-time high Bullish sentiment is to blame. Bitcoin and the precious metal are often compared, but the leading cryptocurrency is a worthwhile asset to own.
Similarities Between Bitcoin and Gold
Market participants like to compare Bitcoin to gold, so it may be worth first understanding the similarities between the two.
Scarcity is something investors should keep in mind: Bitcoin has a limited supply of 21 million coins written into its software, and there is a finite amount of gold in the Earth’s crust.
In theory, the price of an asset with a fixed supply should rise as demand increases. This basic economic principle helps explain why gold has been considered a popular store of value for many years.
Plus, there’s a practical reason here: gold is primarily used in jewelry, but also in certain industrial sectors. Similarly, Bitcoin’s value comes from the fact that it’s a fully decentralized network not controlled by any single entity, reducing transaction costs when sending money to someone around the world.
Bitcoin Dominance
At a high level, it’s easy to understand that both Bitcoin and gold are scarce. Moreover, they both have utility in different situations. But when you dig deeper, it’s easy to see how the top cryptocurrencies are good investments.
Returning to the topic of scarcity, investors may believe that gold has a finite supply, but this is far from the truth: according to the United States Geological Survey, 77% of the gold in the earth’s crust has been mined. Therefore, there is a lot of gold left to be mined.
If for any reason the demand for gold were to surge in a short period of time, mining companies would be incentivized to aggressively invest and expand their operations to target areas around the world that may be difficult to access. In other words, the gold supply schedule may change based on demand trends.
This is exactly what sets Bitcoin apart: it is absolutely finite. The aforementioned supply cap of 21 million coins is unlikely to change unless Bitcoin stakeholders want to completely undermine the value proposition of the entire network. Because Bitcoin’s supply schedule cannot be changed, its price is typically unstable.
Compared to gold, which is a physical commodity, Bitcoin is a digital asset, which means it is easier to store and transport. Bitcoin can also be divided into smaller units and accepted in certain transactions. Imagine going to a restaurant and paying with a piece of gold.
Investors should also not ignore the store of value argument, which is perhaps the most notable aspect of comparing Bitcoin to gold, and in this regard, Bitcoin outshines the precious metal.
After all, saving and investing is all about building purchasing power over time. Over the past five years, the price of Bitcoin has skyrocketed 718%, meaning $1,000 invested in June 2019 would be worth nearly $8,200 today.
Meanwhile, the price of an ounce of gold has only increased 73% over the same period, which also included hugely disruptive events such as the pandemic, inflationary pressures, rising interest rates and general economic uncertainty.
Comparisons between Bitcoin and gold will continue to be made, but I believe the leading cryptocurrency will be the better investment opportunity over the next 5 to 10 years.
Neither …
