When investors look for stability, especially during uncertain economic times, two assets often come up for consideration: Bitcoin and gold. Gold has been a symbol of wealth and security for thousands of years, trusted across cultures and generations as a store of value. Bitcoin, on the other hand, is the digital newcomer that has captured global attention. It is often referred to as “digital gold” for its unique properties and fixed supply.
As we cover the differences between Bitcoin and gold, we’ll explore which asset might be the better hedge against economic turbulence, covering factors like scarcity, accessibility, volatility, and practical use cases. Whether you’re a traditionalist who values gold’s history or a modern investor drawn to Bitcoin’s technology, this guide will help you better understand each asset’s characteristics.
What Is an Inflation Hedge?
Before comparing Bitcoin and gold, let’s define what makes an effective inflation hedge. An inflation hedge is an asset that maintains or increases its value during times of rising prices. Emily Man, an investor at Primary Ventures, explains that a hedge can provide stability when other investments decline, ideally offsetting inflation’s impact on purchasing power. In practical terms, the goal of an inflation hedge is to protect wealth from eroding when inflation rates spike.
Bitcoin and Gold’s Historical Performance
Gold’s role as a store of value dates back thousands of years, used in everything from currency to jewelry. It has historically held value during economic downturns and periods of high inflation. For example, in the 1970s, U.S. inflation averaged around 6.8%, and gold prices surged from $35 an ounce in 1971 to over $600 an ounce by 1980).
In more recent times, during the 2008 financial crisis, gold prices jumped by over 30% as stocks plunged, proving its status as a dependable hedge. According to Fergus Hodgson, director of Econ Americas, “Gold has thousands of years of established history as a resolute store of value,” making it a reliable asset when uncertainty arises.
Bitcoin, created in 2009, has existed for just over a decade, and its effectiveness as an inflation hedge is still debated. During the COVID-19 pandemic, Bitcoin’s price soared from $7,300 in January 2020 to a peak of $64,400 by April 2021, as investors saw it as an alternative to fiat currency amidst massive stimulus spending.
However, Bitcoin’s price volatility has led some experts to question its long-term potential as a hedge. Adam Perlaky, senior analyst at the World Gold Council, points out that Bitcoin lacks the historical data of traditional inflation hedges, making it harder to evaluate its effectiveness during extended inflationary periods.
While Bitcoin’s price dropped significantly during the crypto market downturn of 2022, recent price rebounds have reignited interest.
Scarcity
Gold is a scarce resource with about 3,000 metric tons mined each year. Although mining is ongoing, the gold supply grows slowly, and discoveries are rare. This controlled supply growth has kept gold relatively stable over time. While hypothetical future discoveries such as space mining could theoretically increase supply, these remain speculative.
Bitcoin’s most unique feature is its capped supply of 21 million coins. Unlike gold, no more Bitcoin can ever be mined once this limit is reached. To date, over 19 million Bitcoin have been mined, with the remaining supply set to be fully mined by 2140. This absolute scarcity, combined with its digital nature, creates what some call “digital gold.”
“Bitcoin’s fixed supply and independence from central bank policy” make it a compelling alternative to inflationary fiat money, says Chris Kline, COO of Bitcoin IRA. Because Bitcoin’s value isn’t subject to currency devaluation, proponents argue it offers unique protection against inflation.
Ease of Access and Costs
Gold can be purchased in various forms, including physical bars, coins, and ETFs. Physical gold often requires secure storage, such as a safe or deposit box, incurring additional costs. According to J.P. Morgan, fees for gold storage range from 0.1% to 0.5% of the gold’s value per year, depending on the facility. ETFs and gold futures provide an easier way to hold gold without the need for physical storage, though they often come with annual management fees.
Physical gold can be logistically challenging to store securely and is subject to shipping and insurance fees. For investors seeking simpler ownership, gold ETFs and gold-backed stocks provide a more accessible route.
On the other hand, Bitcoin is easy to buy and trade through methods like Bitcoin ATMs and mobile apps. Investors can also access Bitcoin through traditional brokerage accounts that offer Bitcoin ETFs, which gained approval in early 2024, providing exposure to Bitcoin’s price without truly owning the asset.
While Bitcoin doesn’t need physical storage, it does require digital security. Cryptocurrency holders who keep assets in online wallets may face risks from hacking, while those who “self-custody” using private wallets must guard their private keys carefully. Bitcoin’s simplicity appeals to investors who prefer digital assets, but it may come with added security concerns for less tech-savvy individuals.
Comparing Real-World Uses
Gold’s value extends beyond investment; it’s widely used in electronics, jewelry, dentistry, and even in central bank reserves. The industrial demand for gold contributes to its resilience, keeping it valuable even in times of economic instability.
Bitcoin’s use case remains largely speculative, focused on investment and financial transactions. However, as decentralized finance (DeFi) and blockchain technology grow, Bitcoin may find new utility in lending, borrowing, and secure digital transactions.
Liquidity and Volatility
Gold’s stability and relatively low volatility make it a preferred asset for conservative investors. While gold can be liquidated fairly easily in small quantities, large transactions can be more challenging. Selling physical gold, for instance, may involve delays due to security checks, transportation, and purity verification, all of which impact liquidity.
For those holding gold ETFs, liquidity is higher, with average daily trading volumes for popular gold ETFs, reaching millions of shares per day. Physical gold also typically incurs buy-sell spreads, which can vary widely, often from 1-3% depending on the seller and location.
Bitcoin is known for its significant price volatility. Between 2017 and 2021, Bitcoin’s price ranged from just over $1,000 to nearly $69,000 – a volatility that is both a draw and a risk.
Bitcoin is highly liquid for smaller transactions on major exchanges, with platforms like Binance, Kraken, and Coinbase processing billions of dollars in daily volume. However, large holders may encounter liquidity limits.
Centralization and Security
Gold is generally held in centralized custody, especially for larger amounts. Central banks, for instance, hold around 34,000 metric tons of gold in reserves globally. While central storage provides secure access, it also exposes gold to confiscation risks, as seen in the U.S. during the Great Depression when the government seized privately held gold to support the dollar.
For individual investors, holding gold in a bank or safe-deposit box can add layers of security.
Bitcoin’s decentralized network allows holders to control their assets independently, reducing risks of central confiscation. With self-custody, investors store their Bitcoin using private wallets and keys, ensuring that no government or central bank can seize or freeze these assets. This unique feature has attracted investors seeking greater financial autonomy.
However, self-custody comes with security responsibilities. To safeguard against theft, self-custody Bitcoin holders must use strong security practices, such as hardware wallets or cold storage.
Environmental Impact
Gold mining has a significant physical environmental impact, leading to deforestation, water pollution, and toxic waste from chemicals like cyanide and mercury. The World Gold Council estimates that gold mining operations emit approximately 126 million tons of carbon dioxide annually. Mining activities also degrade ecosystems and impact biodiversity, making environmental concerns a critical issue for the industry.
In response, some gold companies are adopting more sustainable mining practices, such as carbon offset programs and cleaner technologies. Still, these efforts are in the early stages and have yet to mitigate gold’s full environmental impact.
Bitcoin mining requires substantial energy to run its network. Estimates from the University of Cambridge show that the Bitcoin network consumes around 160 terawatt-hours (TWh) of electricity annually, equivalent to the power usage of a small country. This energy use has led to criticism over Bitcoin’s environmental impact.
However, the industry is increasingly shifting toward renewables. In 2023, over 50% of Bitcoin’s mining energy came from renewable sources like hydroelectric, wind, and solar. Mining companies are also moving to areas with surplus renewable energy, especially in regions where renewable energy is abundant and underused.
Which Asset is Right for You?
Both Bitcoin and gold offer unique advantages as inflation hedges, but each appeals to different types of investors with varying risk tolerance and investment goals.
- Gold remains the traditional choice, providing stability, a long history of value retention, and tangible, multifaceted demand across various industries. Its price stability and established reputation make it attractive for conservative investors who value security and a tested inflation hedge.
- Bitcoin, with its digital nature and capped supply, is a newer and more volatile option that may suit tech-savvy investors seeking a hedge against inflation and currency devaluation. Bitcoin’s independence from government control has drawn more risk-tolerant investors interested in a decentralized asset.
Get Some “Digital Gold” Today
If you’d like to get your hands on Bitcoin – sometimes called “digital gold” – simply find your nearest RockItCoin Bitcoin ATM and make your first purchase in minutes. Or, if you want to get some Bitcoin from the comfort of your home, download the RockItCoin app and start buying Bitcoin with credit and debit card.
Disclaimer: This article is for informational purposes only and does not constitute financial, investment, or legal advice. The views expressed in this blog are based on publicly available information and are intended to provide general guidance. Please consult with a qualified financial advisor or conduct thorough research before making any investment decisions. Neither the author nor RockItCoin assumes any liability for losses incurred based on the information provided in this article. Cryptocurrency investments, including Bitcoin, are highly volatile and carry substantial risk. Past performance is not indicative of future results.
