For centuries, individuals and nations alike universally recognized gold as a stable and consistent store of value that could be exchanged between two parties as a form of payment, and it even eventually went on to be the asset backing various paper currencies.
Despite this, governments across the globe have been moving away from this precedent for the past several decades, and gold is now largely looked upon as simply a safe haven investment that can be used to hedge against potential economic turbulence.
Now, however, there is a new rapidly emerging technology that many analysts believe will ultimately prove to be a competitor to gold: Bitcoin.
Gold Versus Bitcoin: The Basics
Naturally, the obvious difference between the two assets is that gold is a physical asset while Bitcoin is a digital one, but there are multiple similarities and differences that must be understood while deciding which asset one wants to trade or invest in.
The first key difference is that Bitcoin has absolute scarcity, while the supply of gold is ever inflating – even if it inflates at a rate much lower than that of fiat currencies.
Bitcoin’s supply is limited to 21 million, which means that no matter what, there will never be more than 21 million BTC circulating. Importantly, many investors and analysts also note that the actual maximum supply is much lower than this, as there is a significant amount of BTC that is currently locked within lost or inaccessible wallet addresses.
Gold, on the other hand, theoretically has an endless supply, as some major construction companies have even announced plans to use autonomous mining technology to harvest gold on other planets.
Despite this, some investors prefer to have physical assets rather than digital ones, which may give gold an edge over Bitcoin in the eyes of a select group of investors who are looking to add a safe haven investment to their portfolios.
This benefit, however, also degrades gold’s efficiency as a currency, while Bitcoin, on the other hand, can easily be transferred between two parties in a quick and cost-effective manner.
Both Bitcoin and gold are viewed as safe haven investments by many analysts, but it is important to note that a key distinction between the two is that gold has an inverse correlation with the global economy – with its price rising when the markets fall and vice versa – whereas Bitcoin has not yet shown any direct inverse correlation with the global economy and equity markets.
It is also important to note that gold has developed this inverse relationship over the past century, whereas Bitcoin is a relatively new asset that has yet to bear witness to any sort of global economic turmoil.
Fans of gold have been hesitant to accept Bitcoin with open arms, as Peter Schiff, a prominent analyst and diehard proponent of the precious metal, recently explained in a tweet that one fundamental flaw of Bitcoin is that its largest investors – commonly referred to as whales – will sell their holdings each time the cryptocurrency’s price climbs in an effort to realize their gains before a “market crash wipes them out.”
“Bitcoin hodlers won’t sell as they believe they’ll get rich when #Bitcoin moons. Bitcoin whales get rich by selling now to realize their paper gains before a market crash wipes them out. The whales must make sure the hodlers don’t lose faith and cash out so that they can cash in!” He bearishly noted.
Which Asset is Preferable for Traders and Investors?
Both assets experience unique volatility that is uncoupled from that of the traditional markets, but there are key characteristics that investors and traders alike should consider when deciding whether they would prefer to invest in and/or trade Bitcoin or gold.
Bitcoin has a significantly smaller market capitalization than gold, which makes it more prone to massive movements in both directions. This volatility can be very lucrative to traders who are looking to capitalize on volatility and can translate into massive profits.
There are a plethora of platforms that allow users to trade cryptocurrencies, and many platforms that allow users to trade traditional assets like gold and equities, but one platform combines the best of both worlds and allows users to trade both types of assets in one convenient place: PrimeXBT.
This platform is ideal for traders and active investors who are looking to capitalize on the volatility and movement experienced by all different assets in one place, and even allows users to trade Bitcoin with 100x leverage — making all of the crypto’s price movements highly profitable.
Because gold sees much tamer swings than BTC on a daily basis, PrimeXBT allows users to trade the precious metal with 500x leverage, which can make its smaller price swings just as lucrative for traders as the larger ones incurred by Bitcoin.
For passive investors, however, each asset can play a unique role in their portfolios, with gold hedging against the risk in their equity positions, while Bitcoin provides a high risk-reward ratio that could bolster their portfolio’s performance over the long-term.
In conclusion, both assets have their pros and cons, and it does appear that there is room for both to play an integral role within all passive investors’ portfolios.
For active traders, however, using a leveraged trading platform like PrimeXBT can help translate the assets’ volatility into large realized gains, and by utilizing both long and short positions, traders can profit no matter which direction the markets are moving.