Bitcoin vs gold: Can the so-called digital gold beat its physical counterpart now?

Dubai: Gold has long stood the test of time with little competition as an asset. To many, it’s the perfect ‘safe-haven’ asset. It's scarce and has become a sought-after metal. It’s long been a stronghold of value and a hedge against economic turmoil. However, Bitcoin has challenged gold’s position in recent years.

Does the investment still merit being called ‘digital gold’ particularly after global markets crashed last week? ‘Digital gold’ is currently a commonly used descriptor coined by industry experts after evaluating the performance of the top cryptocurrency in recent years. Let’s delve deeper.

“It's been 15 years since Bitcoin first launched. Since then, it has gone on a historic run to become the most productive asset of the 21st century,” opined Brian Deshell, a UAE-based cryptocurrency trader and analyst.

“Over the course of this journey, investors have had a hard time categorising what Bitcoin is and why it has merit as an investment. Perhaps the most well-understood and effective narrative to take hold is that Bitcoin is akin to digital gold.”

Gold’s growth prospect still limited

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. Brody Dunn, an investment manager at a UAE-based asset advisory firm, details them.

“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,” Dunn explains.

“Although Bitcoin is often called ‘digital gold’, the differences are vast. Both serve as stores of value, yet Bitcoin has technical advantages in terms of fungibility, ease of transfer, and storage. Meanwhile, gold has a timeless appeal, and has demonstrated its value and resilience over generations.”

While comparisons to gold help us categorise Bitcoin's multi-faceted use cases, is it actually a better investment asset than the age-old precious metal gold? With a little digging, it's clear that one asset outshines the other.

Bitcoin still proves too volatile with crises

Gold advocates or crypto critics usually point out that on Bitcoin's journey of historic price appreciation there has been significant volatility. While Bitcoin's volatility is undoubtedly something worth noting, that shouldn’t alone be the characteristic worth studying.

“Volatility is a double-edged sword. The same volatility that causes Bitcoin to lose three-quarters of its value every few years is the same volatility that helped propel it to become the best-performing asset of the century,” added Deshell.

“Also, Bitcoin's volatility has been diminishing as the asset matures. When zooming out, Bitcoin's volatility is a feature. For investors with the goal of investing over years and decades, not months, few better options boast as impressive of a track record and hold as much long-term potential as Bitcoin.”

As clear as Bitcoin's outperformance of gold is on a price basis, there are several other characteristics that make it a superior store of value built for the future. Most apparent would be its finite supply. While gold supply can be influenced by new discoveries, Bitcoin has a set limit of 21 million coins.

Will Bitcoin ever prove to be better than gold?

“As Bitcoin is in finite supply, prices will keep rising as long as quantity reduces. Aside from this factor, Bitcoin can be considered a superior form of gold on ‘decentralisation’ and security,” said Dunn, before going on to explain why that could be the case favouring the top cryptocurrency.

“Bitcoin operates on a block chain maintained by computers around the world, so investors can rest assured that their hard-earned money is secured behind an impenetrable network no government will ever be able to devalue or confiscate -- something gold can't claim.

“Bitcoin's investment proposition becomes all the more clear in an increasingly digital world. Offering its holders true financial autonomy devoid of monetary manipulation, Bitcoin has not only proven capable of unseating gold as the superior store of value, but it has become the asset to secure and build wealth.”

The block chain technology is not without risks, however. Bitcoin is still deemed a speculative investment as it has no intrinsic value and is not backed by anything like gold. Some experts will tell you that Bitcoin profits as an investment as there will always be those willing to buy it at a higher price.

On the other hand, with variants of Bitcoin’s technology also making many financial products and services available to the masses at low cost, directly connecting savers and borrowers, these developments and the possibilities can benefit prices in the long run and offer upside potential.

While Bitcoin has seen a meteoric rise in one short decade, there’s so much room to grow, but gold doesn't

- Brody Dunn

Bottom line?

After the recent market meltdown, investors have been debating on whether gold or Bitcoin will keep your money crisis proof. As Bitcoin has more growth potential and gold remains less volatile, it all boils down to how you can handle short term price movements and staying invested regardless.

Regarding market price, Bitcoin has been much higher than gold for some time but is much more volatile. Gold has more use cases, while Bitcoin is limited to financial instruments and services only. Whether Bitcoin will replace gold is a subjective argument.

Ultimately, choosing the right asset – be it Bitcoin or gold – for your portfolio depends on your personal preferences, risk tolerance, and trading goals. Remember: informed decision-making is the key to trading any asset.

Industry veterans encourage you to research and understand the opportunities and potential pitfalls each asset presents before committing your funds. By doing so, you’re better placed to make choices that align with your goals.