Bitcoin‘s (CRYPTO: BTC) price has been on an absolute tear. Since the start of 2023, this digital asset has soared 311%, thanks recently to the approval and launch of spot exchange-traded funds.
It’s interesting to note that gold has also been experiencing bullish sentiment. Its price is in record territory as well. But when comparing these two assets, it’s strikingly obvious that the top cryptocurrency has a huge edge over the precious metal. Let’s take a closer look at Bitcoin and gold.
Some similarities
I think it’s first appropriate to understand how Bitcoin and gold might be similar. After all, there’s a reason many investors find it smart to compare these two.
Bitcoin and gold possess certain levels of scarcity. At some point in the future, there will only ever be 21 million Bitcoin tokens in circulation. And there’s only a certain amount of gold in the Earth’s crust.
Basic economic principles show us that if something has a fixed supply and demand rises, the price should go up. The simple rule helps explain why gold has typically been viewed as a safe asset to hold over long periods.
Besides being used as a store value, these two assets have some utility. Gold is primarily used in jewelry because of its luster and rarity. But it has tiny value as an input in industrial use cases.
Because of its decentralized and global nature, coupled with the fact that no single entity controls it, Bitcoin is useful when sending large amounts of money to anyone directly. The final and nearly immediate settlement is also compelling.
Notable differences
Bitcoin and gold have some surface level similarities, but by digging deeper, we’ll see that they are very different. Bitcoin has numerous properties that make it superior to gold.
Scarcity is a topic that we should revisit. The supply of gold might seem fixed, but it’s not. Of all the gold that has ever been known to be in the Earth’s crust, about 77% has been mined, according to the U.S. Geological Survey. There is still a massive amount underground. If gold’s price were to skyrocket tomorrow, then it becomes economically feasible for mining companies to invest aggressively in bolstering their ability to extract more deposits.
Basically, the supply of gold can be adjusted if the demand is strong enough. And there’s also the possibility that gold deposits will be found in outer space.
This topic of scarcity is where Bitcoin truly shines. Bitcoin is absolutely finite. There can never be more than 21 million coins in circulation, as this is written in the software. Unless the majority of nodes agree to increase the supply, this isn’t going to change. Supply can’t be adjusted to match demand trends, which is why Bitcoin has historically been extremely volatile.
Because it’s a digital asset, Bitcoin is also more transportable than gold. Bitcoin is also divisible to eight decimal places, and it can even be used in transactions. Using physical gold to pay for your day-to-day purchases just isn’t practical. In this regard, gold lacks utility.
And when it comes to the store-of-value debate, gold doesn’t hold a candle to Bitcoin. At the end of the day, investing is all about raising one’s purchasing power over time. Bitcoin wins this battle with flying colors.
In the past five years, the price of Bitcoin has soared 1,630%, while the price of an ounce of gold has increased by just 58%, demonstrating that someone who bought the digital asset would be much better off financially. And this was during a time of heightened macro-uncertainty, with the pandemic, inflationary pressures, and rising interest rates. Of course, because its value doesn’t fluctuate much, gold is probably an easier asset to own on a psychological level.
If we look out over the next five to 10 years, I’m sure the comparisons between Bitcoin and gold will continue. But based on everything we’ve discussed here, the world’s most valuable cryptocurrency is in a league of its own.
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Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
Here’s Why Bitcoin Is a Better Asset to Buy and Hold Than Gold was originally published by The Motley Fool