Gold Versus Bitcoin

I never thought I’d write an article asking whether Bitcoin could replace gold. That fact is a sign of newer times. Bitcoin and gold could not be more different - gold reaches back to the history books, while Bitcoin is futuristic. However, with BTC’s current value and acceptance, comparing gold and Bitcoin has become a legitimate line of inquiry.

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So, let’s evaluate Bitcoin and gold, examining their regulations, security, utility, and comparative value.

Bitcoin’s Emergence into the Gold “Space”

In December 2024, the Chair of the Federal Reserve, Jerome Powell, said in a live interview, “People use Bitcoin as a speculative asset. It’s like gold, only it’s virtual. It’s digital… It’s not a competitor for the dollar. It’s really a competitor for gold.”

Before using this as evidence to conclude the case in favor of Bitcoin replacing gold, I want to give the quote context: the interviewer’s question was primarily about Bitcoin versus the U.S. Dollar. Powell’s response was more about Bitcoin not competing with the U.S. Dollar. And this was a conversation, not an official statement recording the position of the Federal Reserve.

However, Powell’s response was significant for two reasons:

1) He is the Fed Chair

2) He chose to compare it to gold without the interviewer asking about gold.

Today, Bitcoin is tagged as the “Digital Gold.” What does this mean? When analysts talk about Bitcoin’s emergence into the gold “space,” they are referring to gold’s status as a strategic reserve. To understand the comparison between gold and Bitcoin means understanding the term “Strategic Reserve.”

Features Making Gold a Strategic Reserve

1. Store of value: Societies have universally recognized and traded gold for millennia, making it a reliable store of value.
2. Safe-haven asset: People and governments flock to gold during economic uncertainty and crises, especially as a hedge during inflationary periods and currency devaluations. This drives up gold prices during these periods.
3. Scarcity and durability: Gold is a finite asset, unlike currencies, which central banks can print as they see fit. Gold does not decay—it stays as gold over centuries.
4. Liquidity: Gold is easy to buy and sell, making it quickly and easily convertible to cash during economic crises.
5. No counterparty risk: Unlike equities or bonds, gold is not dependent on the performance or solvency of an issuer (like a corporation or government).

When exploring Bitcoin’s emergence into the gold space, analysts should consider whether Bitcoin meets the above conditions that gold has as a strategic reserve.

Gold and Bitcoin Compared

1. Regulation: Many countries allow their people to buy and sell physical gold freely (even from vending machines in some cases). Some nations only allow gold trading through registered dealers and require permission to cross the border carrying physical gold. Buying and selling Bitcoin is legal in many countries but is often regulated by governments overseeing cryptocurrency brokers.
2. Security: Holding physical gold is as secure as the physical storage solution chosen by the hold. Trading gold is highly secure as most transactions pass safely through regulated exchanges. Bitcoin’s security is protected by cryptographic code, which is unbreakable with today’s technologies. Bitcoin must be stored in crypto wallets, which can be a weak point in the security chain. For example, weak physical security of the devices used to access Bitcoin can result in theft. Also, future quantum computing could break Bitcoin’s encryption, and Bitcoin would have to adapt to that challenge. In contrast, gold would require physical theft.
3. Supply: Both Bitcoin and gold have finite supplies. Bitcoin’s mathematical maximum supply is 21 million coins. In comparison, the US Geological Survey estimates the amount of gold available to be 200,000 tonnes, plus 50,000 tonnes left to mine.
4. Utility: Gold has established utility beyond just a store of value. It is highly malleable, an excellent conductor of heat and electricity, and resistant to air, heat, moisture, and most solvents. Gold’s physical properties allow people to use it in jewelry, electronics, medicine, dentistry, the automotive industry, and aerospace. Bitcoin’s utility remains as a digital currency and speculative asset because it has no physical properties. (It’s worth noting that Bitcoin’s underlying technology, blockchain, is valuable as a record-keeping system.)
5. Liquidity. Gold has always been liquid, i.e., easily tradeable, for centuries, even during global wars. That’s a key reason why gold is unquestioningly a strategic reserve. Bitcoin’s liquidity varies depending on its market cycle and even the broker through which you might be trying to buy or sell it. For example, some brokers limit the amount of daily Bitcoin liquidations.
6. Volatility: According to Bloomberg ICE Benchmark’s most recent data, the price of Bitcoin is more than four and a half times more volatile than the price of gold.
7. Tax Liability: Each country will have its own tax rules for gold and bitcoin. Check your country’s tax code to see if gold or Bitcoin gains or losses result in a tax liability. For example, the US’s Inland Revenue Service considers gold a physical “collectible” with a 28% tax rate. In contrast, it considers Bitcoin “property,” with capital gains tax starting at 50% and rising.

Can Bitcoin Ever Replace Gold?

There are many reasons why Bitcoin will not fully replace gold, and here are just a few:

1. Gold is a recognized store of wealth and has been a form of exchange for millennia. Investors and central banks own gold globally, and for individual, retail traders who are using a broker, gold trading accounts are easy to establish. Its physical properties make it necessary for society and industry Humanity could not function without gold, but humanity would function if Bitcoin disappeared tomorrow. Gold’s dual nature as an investment and invaluable physical material sets it apart from Bitcoin.
2. Bitcoin’s excessive volatility relative to gold suggests that it is more a speculative asset than a long-term store of value.
3. Bitcoin has occasionally displayed behaviors similar to safe-haven assets, such as moving in the same direction as gold for some periods. But this behaviour is not consistent.
4. Bitcoin emerged in 2009 and first noticeably rose in popularity in 2017. Bitcoin is nowhere close to achieving the longevity of gold, which has seen the rise and fall of civilizations.

The more likely outcome is that Bitcoin and gold will share status in some governments or central banks as a strategic reserve, rather than Bitcoin fully replacing gold.

The Value of Bitcoin vs. Gold

Let’s look at Bitcoin’s value relative to gold in this BTC/XAU chart:

Bitcoin’s value plotted relative to gold

This chart shows the ratio of Bitcoin to gold. When the values increase on the chart, it means Bitcoin becomes more expensive relative to gold.

The first spike in Bitcoin’s value relative to gold was in December 2017, but then it collapsed seven-fold in relative value in a year. Three years later, Bitcoin's value climbed 15-fold relative to gold, falling again to a third of the relative value before regaining its strength. Essentially, Bitcoin’s value is exceptionally volatile and non-linear compared to gold. Based on this data, I would not consider Bitcoin and gold similar asset classes, and I would not consider Bitcoin a long-term store of value (yet).

Is it Better to Buy Bitcoin or Gold?

This is a false question because nothing stops an investor from buying both. The question to ask is, what’s the purpose of the purchase?

1. Bitcoin requires more market timing because of its volatility. If the purpose of the transaction is speculative with more potential upside gain, then Bitcoin may be more beneficial (but this is not guaranteed).
2. Gold still has upside speculative potential, but its lower volatility gives it less risk.
3. I will choose gold to hedge against inflation or an economic crisis. Bitcoin has not had the time to prove itself in this regard.

Trading and Investing in Gold

Pros

1. Gold has a much longer chart history, which is excellent for long-term analysis.
2. The fundamental factors affecting gold price movements are more widely known and predictable.
3. I find gold has more precise technical patterns, such as support and resistance levels.

Cons

1. Gold does not move much in absolute terms and requires leverage for trading to be worthwhile, which can mean rollover fees for overnight trades.
2. If I wanted to buy and sell physical gold, I would have to find a way of storing it.

Trading and Investing in Bitcoin

Pros

1. Bitcoin’s high liquidity makes it tradeable using technical analysis.
2. Bitcoin’s price movements seem independent of other asset classes.
3. I can trade Bitcoin using futures on U.S. exchanges if I want a safe trading environment.
4. I can take short positions on Bitcoin through futures contracts.
5. Bitcoin is becoming more acceptable by central banks, regulators, and governments may deregulate much of it.

Cons

1. Bitcoin does not have a long-term price history.
2. The factors affecting Bitcoin’s price moves are not as well established as traditional asset classes.
3. Bitcoin is highly volatile. I could be right on the overall price direction in a trade but take a loss because of a short-term move against me.
4. Many crypto brokers have become insolvent or suffered security issues.

Bottom Line

Gold is an unquestionable strategic reserve and store of value for central banks and investors, not to mention its use in industry and manufacturing. However, Bitcoin is knocking on gold’s door in an attempt to take its coveted status. However, Bitcoin has existed for less than two decades, and gold has established its legitimacy over millennia. I doubt Bitcoin will replace gold as a strategic reserve, but some central banks may use it partially for this function. Bitcoin is gaining wider acceptance year after year. Trading Bitcoin has become relatively safe and well-regulated, and its volatility and huge trends make it potentially much more profitable to trade than gold.