Bitcoin vs. Gold: What’s the Difference?

The financial media has at times struggled to cover the emerging sector of cryptocurrencies. By now many have at least heard of the first and most prominent cryptocurrency, Bitcoin.

© Gainesville Coins | Jonathan Perry

If you ask a crypto enthusiast why Bitcoin is different from the thousands of other altcoins and digital tokens out there, you’ll often hear Bitcoin referred to by the nickname “digital gold” or even “gold 2.0.”

There are quite a few reasons why this label has stuck, aside from being catchy marketing.

• Both have obvious monetary characteristics, by virtue of gold’s history and Bitcoin’s original vision (and its name).
• Both are often categorized as “alternative investments” by Wall St.
• Both have a limited supply that gradually increases over time as a result of “mining.”
• At some point in the future, the supply growth of each will slow down, ultimately to a fixed amount.
• Just like gold is the king of the metals, Bitcoin is the most trusted and most valuable of the cryptocurrencies.

Despite these surface-level similarities, the assertion that Bitcoin is truly a digital form of gold is worth further examination. Is it fair to compare the two favorably after analyzing the similarities and differences, and scrutinizing the relevant pros and cons, of Bitcoin vs. gold?

With decades of experience buying and selling in the precious metals industry, we have a wealth of knowledge in this area to share.

We also have spent years participating in, researching, and advocating for the cryptocurrency trade. (My desk at the office is literally surrounded by crypto mining hardware on either side.)

Our expertise in both areas allows us to provide some unique insights into the gold vs. Bitcoin comparison.

Bitcoin first came into existence in 2008, but gold has been used by humans for millennia.

We’ve identified a set of 10 straightforward attributes relevant for comparing Bitcoin and gold. Which of the two is better at what it purportedly does? We’ll evaluate which side is better-suited along each of these 10 dimensions.

1. Gold Has More Durable Sources of Value

One thing that gold has undeniably been associated with throughout history is value. Gold's centuries of use as money, in international commerce and later as backing for money, plainly attests to this.

Bitcoin also makes a clear claim to a similar type of universal value. Aside from being a proof-of-concept for decentralized, fully digital currency, Bitcoin has the word "coin" right there in the name!

Despite the name, Bitcoin is fully digital and can only be metaphorically represented by actual coins.

How does Bitcoin's value measure up? We have to look at more than just price. Pointing out that BTC is trading at $30,000 while the gold spot price is at $1,900 per ounce is not an apples-to-apples evaluation.

Sometimes you’ll see enthusiastic Bitcoiners cite the current prices, but equating one troy ounce of gold to one Bitcoin is rather arbitrary.

You can more reasonably compare the market capitalization (in dollar terms) of the Bitcoin supply against the total value of all the world’s gold. By this metric, the roughly $12 trillion of gold in the world dwarfs Bitcoin’s market cap of approximately $500 billion.

If we break it down further, it might be appropriate to liken the smallest unit of a Bitcoin, a Satoshi (1/100,000,000th of a BTC—meaning it takes a hundred million Satoshi to equal one BTC), to an incredibly small weight of gold, such as a milligram. A single mg is the same as 1/1,000,000 (i.e. a millionth) of a kilogram. Expressed in these terms, the value of 100 Satoshi is roughly the same as 10 milligrams of pure gold: Each are worth about 40¢.

Ultimately, the value of Bitcoin is based entirely on potential and perception. To be fair, though, the latter is also largely true of all fiat currencies.

By contrast, gold has intrinsic value. Gold is classified as a “noble” or precious metal. Its unique properties as an element make gold very useful in a surprising array of industries, from the tech and medical fields to aeronautics. Moreover, because of its beautiful luster and unsurpassed malleability, gold continues to have underlying value as a popular medium for jewelry and religious artwork.

Want everlasting opulence? How about a gold reliquary holding a medieval French queen's heart? | Image source: The History Blog archives

The point is that gold isn’t only valuable due to its monetary characteristics or investment potential. Gold has a variety of important real-world uses that make it worth the cost of digging out of the ground.

Winner: Heretofore (and for the foreseeable future), gold.

2. Bitcoin and Gold Both Have Many Types of Demand

Bitcoin has three primary areas of demand, or use cases.

1. Digital currency
2. Speculative asset
3. Blockchain network itself

Photo: MichaelWuensch / Public Domain

First and foremost, Bitcoin is most readily identified as a peer-to-peer, decentralized digital currency. This is undoubtedly what most of its early adopters, and the general public, see as the main purpose of cryptocurrencies.

More recently, we have also seen an explosion of interest in Bitcoin as a speculative asset. As such, BTC prices—and the health of the broader crypto space as a whole—have experienced bouts of incredibly high volatility.

A mere 0.3% of Bitcoin transactions are in the form of payments. It’s estimated that currently as much as 80% of BTC trading volume is purely for speculation.

There is also growing demand for the blockchain technology that underpins the Bitcoin network. This is essentially a distributed digital ledger (i.e. a fancy database) that records all transactions that occur on the network.

Neither blockchain nor cryptography more generally are exclusive to Bitcoin. Virtually all other digital currencies (often grouped together as “altcoins”) make use of these tools. Although the notion of building innovative features on top of a blockchain, such as autonomously-executing smart contracts, is more closely associated with another major cryptocurrency network called Ethereum, it’s true that any type of file can potentially be stored on the blockchain.

There are, however, lingering problems with the Bitcoin model of mining. "Mining" in this context is the method of generating new Bitcoins while also verifying transactions on the blockchain. The process relies on a Proof of Work concept that rewards miners for contributing their computing power to the network.

Bitcoin's model is unavoidably deflationary: Put differently, each BTC should theoretically increase in purchasing power over time because the supply of new Bitcoins will always be shrinking until it reaches its predetermined maximum of 21 million.

Although this sounds reasonable on its face, it also has the consequence of making mining unprofitable at some point in the future. Eventually, the reward of Bitcoin given to miners could be worth less than the cost of electricity to mine them in the first place.

This issue can supposedly be solved by adjusting the “difficulty” of the mining algorithms, but it remains to be seen how Bitcoin will be used and how Bitcoin trading will operate as we approach the 21 million limit next decade.

Roughly every four years, the reward given to Bitcoin miners is cut in half.

Another problem is that Bitcoin has "forked" before. A fork usually means a faction of users disagree with some aspect of the network model, so they decide to break off and start a separate blockchain. This increases the chance that demand for Bitcoin could water down over time.

On the other hand, gold has abundant sources of demand. Its popularity for ornamentation, jewelry, and art is as robust as ever. Every day, it seems, new industrial uses for the yellow metal are discovered. Investment demand for gold coins and gold bars is also consistent.

Nonetheless, Bitcoin's future is perhaps limitless. Given enough time and refinement, BTC could someday displace our current system of fiat currencies and centralized payment channels.

Winner: Tie; both arguably have a lot of future potential in this area.

3. Bitcoin Is Easier to Substitute For

Another important consideration is how easily these assets can be substituted for. If so, this dampens the long-term outlook.

Bitcoin has several prominent competitors in the crypto space. Ethereum (ETH) is noteworthy for the flexibility of its blockchain network, which can accommodate all sorts of apps and smart contracts. Ripple (XRP) is another major cryptocurrency, and its network can handle transactions much faster than Bitcoin.

All told, there are over 2,100 other altcoins in existence. This figure doesn't even include the many cryptos that have failed or died thus far, as well. Bitcoin still accounts for roughly half of the total market capitalization of the entire crypto sector—48.2% at the time of writing. The market caps of Ethereum and Ripple are only about 19% and 2.5% of the sector, respectively, by comparison.

There is a much lower risk of gold being replaced or substituted for as the king of the precious metals.

This is apparent in the financial sector. Gold has been used as a store of wealth for centuries, and central banks around the world still hold tons of the metal. Frankly, it's telling that we don't see financial institutions holding any other commodities besides gold as reserves.

Source: Bloomberg

Aside from its history as physical money and the world's monetary standard, gold is also crucial for many technologies. Gold has applications as a catalyst in chemical reactions, and its special properties prevent it from corroding under harsh conditions. This latter quality makes gold ideal for use in the aerospace industry and in medical settings, where the risk of failure can cost lives and billions of dollars.

In fact, an array of technologies rely on gold to work. Gold's chemical and physical properties give it advantages over copper and silver for certain uses, such as in microprocessors, even though silver is actually better at conducting both heat and electricity.

Gold is nevertheless impossible to substitute for in many of its technological and industrial applications.

Winner: Gold.

4. Bitcoin Has Much Higher Volatility

Volatility is a particularly important consideration here because "digital gold" would obviously have to have stability and staying power. In the simplest terms, volatility is a measure of how big and how frequent the swings are when an asset’s price is moving or changing.

By any measure, Bitcoin volatility has been incredibly high over the years. Large vacillations in price are essentially the norm.

This pattern held true even after the Bitcoin market reached full exuberance. BTC rose an astounding 1,800% over the course of 2017, yet it subsequently crashed the following year. Prices plunged nearly 80% from their peak. In both 2021 and 2022, Bitcoin prices saw multiple rallies followed by 50% drawdowns.

This is not to imply that gold has zero volatility. Gold prices more than doubled (+100%) during the two years immediately following the global financial crisis in 2009 before giving back more than a third of those gains in the following economic cycle.

In the long run, gold has maintained its purchasing power against other currencies. Gold’s millennia-long track record in this regard speaks for itself.

The ups and downs for gold pale in comparison to the wild volatility that Bitcoin has exhibited over the last decade. Simply put, Bitcoin volatility is orders of magnitude higher than gold. This complicates Bitcoin's case as a stable store of wealth and a trusted medium of exchange.

Winner: Gold, and it’s not especially close.

5. Bitcoin Is Easier to Liquidate

This point is related to liquidity, but not exactly the same. "Liquidation" in this context simply means selling.

The advent of electronic trading in financial markets has made liquidating a position in gold far easier than in the past. Only paper instruments such as gold ETFs or gold futures contracts enjoy this benefit, however.

ETFs, stocks, and cryptocurrencies all trade in a similar manner on exchanges.

There are indeed times when electronic gold trading closes. Obviously this is also true of brick-and-mortar locations that sell physical gold, which cannot be liquidated with a few keystrokes. Gold does enjoy the benefits of a nearly universal market where you can surely sell your gold no matter what country you find yourself in.

Moreover, even during normal business hours, you will have to wait for your gold to be assayed—i.e. smelted and analyzed for purity and authenticity—if you are selling a generic bullion product.

Cryptocurrencies, by contrast, can take full advantage of electronic liquidation. Bitcoin and its copycats were designed specifically with digital transactions in mind. These cryptos inhabit the electronic world by their very nature.

Thus, selling your crypto for some other currency can be done from the convenience of a home computer or smartphone.

Winner: Somewhat of a push if paper gold is included, but the edge goes to Bitcoin for its electronic nature.

6. The Gold Market Has Superior Liquidity

It will be helpful to start with a definition of liquidity: essentially, how easily an asset can be bought or sold without impacting its market price.

An increasing number of vendors globally are accepting Bitcoin as payment.

This isn’t a trivial consideration. Bad liquidity means you might have to accept selling something for far less than it ought to be worth.

At intervals, Bitcoin has experienced rather poor liquidity. This is partly influenced by the lag in transaction speed during down times for the market; prices can jump or fall dramatically in the intervening hours. (Yes, sometimes the transactions take hours to execute.)

It’s also true that large-size trades tend to greatly impact the BTC price because trading volumes have been relatively thin under normal conditions. There have even been revelations that the vast majority—perhaps 95%!—of the reported volume is inflated by non-competitive trading patterns to give the appearance of greater liquidity.

Another problem is the wide discrepancy between prices on different Bitcoin exchanges. In a liquid market, there should be virtually no divergence between the price of the same asset trading on different platforms or venues.

The gold market stands in contrast due to its extremely high liquidity. Maybe the only more liquid market in the world is for United States Treasurys (bonds).

Daily trading volumes for gold are consistently high. Of course, you can also buy and sell physical gold all over the world—no matter how spotty your WiFi connection is. Perhaps most importantly for gold vs. Bitcoin considerations, gold has an abundant above-ground supply, and much of this precious metal eventually gets melted down and recycled rather than destroyed.

Winner: Gold.

7. Gold Offers Greater Usefulness as a Hedge

Many proponents of cryptocurrency assert that Bitcoin is an effective hedge against disruptions in the broader markets.

There is indeed a logical argument behind this assertion. Not only is Bitcoin widely seen as an “alternative” asset, but its creation was steeped in innovation and disruption from the beginning.

Bitcoin prices have nonetheless exhibited a strong correlation with stock prices over the last two years. This pattern of following the equity market significantly reduces the usefulness of Bitcoin as a hedge. In short, it defeats the purpose.

Hedging against market downturns, high inflation, and uncertainty are what gold does best. Gold is the ideal hedge during times of economic turmoil.

One of the biggest advantages that works in gold's favor in this regard is that it is a non-correlated asset. This means that gold prices don't tend to move in the same direction as other assets.

Investors shouldn't put all of their proverbial eggs in one basket. Gold has traditionally functioned as a reliable safe haven investment.

The only strong correlation gold exhibits is with currencies: The price of gold can rise or fall depending on the purchasing power of the currency it's measured in. This dynamic is especially true with the U.S. dollar, the world's reserve currency.

Because this relationship with fiat currencies is essentially an inverse (or negative) correlation, gold has tended to resist the effects of inflation (in terms of purchasing power) throughout history.

Winner: Gold, but BTC will perhaps close that gap over the next generation. It also helps that neither is better suited to some large-scale, material-intensive industry (e.g. copper).

8. Bitcoin Has More Value as an Appreciating Asset

Investors are, of course, always interested in their ROI—return on investment. Although an oversimplification, this is undoubtedly the most basic measure of an investment's performance. Everyone wants to know (as they should): What amount of profit can I realize on my investment?

Gold prices have on the whole risen and kept pace with inflation throughout history. This property has held true for the precious metals over the long run, which is not true of fiat currencies.

Gold's value as an investment is also underpinned by demand from a variety of industries, in addition to the economic realities of the gold mining sector.

By comparison, one must concede that (also on the whole) Bitcoin has appreciated in price dramatically in its first decade of life.

We're not talking about a four-bagger or a ten-bagger. That alone would be a fantastic annual return. In Wall Street's borrowed baseball lingo, Bitcoin was an almost unfathomable 19-bagger at one point in 2017: BTC rose by 1,800%, in other words.

Gold's price has historically been very steady in comparison to the volatility of Bitcoin.

The BTC price literally experienced exponential growth, in fact, prior to the massive price correction in late 2018. Several of the price spikes since then (see: 2020, 2021, 2022) have likewise been exponential. If you zoom out the time horizon just a few years, Bitcoin has appreciated some 30,000% from when it traded around $100 ten years ago.

Bitcoin's future potential for gains is undeniable. Yet it's certainly not an investment for the faint of heart!

Remember that gold's value appreciation over time has been for the most part steady. At no time have gold prices ever crashed 80%—over any time period; meanwhile, such extreme volatility has at times shaken the nascent Bitcoin community.

Ultimately, gold sees neither the spectacular gains nor spectacular losses that Bitcoin prices have been subject to.

Winner: Bitcoin, although speculatively so.

9. Bitcoin Carries Counterparty Risk

We touched on the notion of risk in the last section: For Bitcoin’s greater risk, it yields a greater financial reward.

Volatility is not the only risk that Bitcoin investors face, however. There is also the looming risk of having your Bitcoin wallet hacked, or one of the unregulated crypto exchanges freezing accounts.

But what is counterparty risk, exactly? This is the chance that the other party in a contract, trade, or transaction defaults on their obligation, creating a liability for the counterpart.

Like the stock market, crypto trading platforms like Coinbase or Binance are still built upon counterparty risk.

Counterparty risk plagues virtually all financial assets, but Bitcoin is an especially instructive case. BTC has seen more than its fair share of scams and risks in its brief lifetime as an asset. From the early days of Mt. Gox to Quadriga to the more recent fiasco with FTX, hundreds of millions of dollars in crypto has already been lost or stolen.

To be fair, this is a problem that’s inherent for all cryptos and digital assets, not just BTC. Nonetheless, counterparty risk has become a major issue. Coins have been stolen or hacked with alarming frequency, and most crypto exchanges are still beyond the scope of normal regulatory protections due to their decentralized framework.

Physical gold, meanwhile, has zero counterparty risk. It's the only financial asset with this characteristic, in fact. If you own physical gold bullion, there is no chance of someone else defaulting.

Not only does this quality underpin gold's case as a true hedge or safe haven, but the presence of counterparty obligations is the main knock against forms of "paper gold," like gold ETFs or futures contracts. Each of these gold-linked vehicles for speculation rely on cash settlement rather than physical delivery of metals, exposing an investor to potential counterparty risks.

Winner: Gold.

10. Gold and Bitcoin Both Provide a Degree of Financial Safety

Safety is often overlooked when the makeup of an investment portfolio is under discussion. It’s unfortunate because many risks abound in investing. Everyone should plan accordingly for how much appetite for risk they can tolerate.

There are ways to mitigate some of these risks. The safest way to own gold is in physical form, and the safest storage method is in an authorized depository—an insured vault.

Vault storage is actually a requirement for precious metals included in Gold IRAs. In general, allocated storage is preferable to pooled storage, where metals are treated generically or interchangeably so everyone’s assets are mixed together. With allocated (or segregated) storage, the exact items you deposit are kept separated from other depositors’ assets.

It stands to reason that investing in gold is similar to saving money, except without the inflation or depreciation risk of fiat currencies. There is a similar argument to be made about Bitcoin’s inflationary advantages, though its track record is far shorter and this assertion grows less certain when one pulls the time horizon out farther than 15 to 20 years from now.

The equivalent to vault storage for Bitcoin is storing your BTC in a cold wallet. This means using offline storage, such as a USB drive or external hard drive, and keeping the key (or password) to your digital wallet well-protected. If you lose or forget the private key, nobody can access your Bitcoins.

So long as you protect the key to your digital wallet, the security of your Bitcoin account is very high.

Safely storing gold comes with the drawback of paying annual (or quarterly) storage fees. Unlike physical gold, however, any outage of electricity or the internet will effectively render your Bitcoin wallet inaccessible.

Winner: Tie; at least neither is the dollar or another fiat instrument.

Conclusion: Bitcoin Is Not Digital Gold Yet

Even as a Bitcoin ETF is nearing approval, cryptocurrencies as a whole remain highly speculative assets.

Although we’ve taken a reasonably scientific approach to this question, and utilized expertise in both the precious metal and cryptocurrency spaces, there are of course other comparisons you could make for Bitcoin vs. gold. Depending on what you chose to compare, Bitcoin could look like the victor. We specifically focused, however, on qualities that would support or detract from Bitcoin’s case for the moniker digital gold.

If Bitcoin were actually "digital gold," you would expect it to satisfy at least 5 to 7 of these qualities. In fact, even when ties are counted, it only scores a 4/10.

Meanwhile, gold works better for 8/10 of the categories and makes a strong case as an alternative asset uniquely suited to the financial sector.

Over the longer-term, the next 10–15 years, it will be fascinating to see which path each of these broader asset classes (precious metals and cryptocurrencies) follow.

Read more about precious metals and investing from the experts at Gainesville Coins:

Gold vs. Bitcoin: Why You Should Buy Both

7 Best Safe Long-Term Investments

Investor Resources for Understanding Gold, Silver, and Precious Metals

Best Place to Buy Silver Bars

Best Place to Buy Gold Bars