Bitcoin (BTC) versus gold is a frequently held, and often strongly disputed, debate.
While gold offers a physical asset that has long been held as a safe haven investment, BTC’s offering is entirely digital, and is an upstart in the investment sector compared to humanity’s millennia-old love-affair with gold.
To shed light on the matter, Arabian Business spoke with Bundeep Singh Rangar, CEO of Fineqia and Jonathan Solomon, co-founder and co-CEO of ARIA to gather insights on whether Bitcoin can be considered a better investment than gold.
Bitcoin’s unique investment proposition
According to Rangar, Bitcoin’s appeal lies in its distinctive qualities, setting it apart from traditional investments like gold.
“Bitcoin presents a unique investment proposition compared to gold. While gold holds historical significance, Bitcoin’s finite supply and decentralised nature make it an appealing hedge against inflation and economic uncertainties,” he said.
On the other hand, Solomon says Bitcoin is dubbed a ‘Digital Gold’ with a maximum supply limit of 21,000,000 coins, giving it a huge advantage over gold as a store of value since gold is “unlimited.”
Rangar emphasises the increasing institutional adoption and the potential for Bitcoin to emerge as a global digital store of value, contributing to its growing attractiveness among investors.
Solomon believes “Bitcoin as a much better investment than gold for many reasons. From an investment standpoint, although gold is regarded as the primary haven, BTC offers much greater potential for an increase in values.”
Key differences between bitcoin and gold
When it comes to the key differences between BTC and gold as investment assets, Rangar emphasises their intrinsic characteristics. “Bitcoin’s decentralised blockchain ensures transparency and security, setting it apart from gold, which is a tangible physical asset.”
Notably, BTC’s scarcity offers a “predictable supply”, while gold is susceptible to fluctuations influenced by mining dynamics.
These factors play a role in determining the investment landscape for both assets.
Solomon explained that BTC’s “relatively short existence, regulatory uncertainties, and susceptibility to market sentiment distinguish it from gold’s well-established and time-tested reputation in investments.”
Rising popularity and credibility
The surge in popularity of BTC as an investment can be attributed to several factors. According to Rangar, growing recognition of Bitcoin as a legitimate asset class and increasing institutional adoption have enhanced its credibility, marking a shift in the financial landscape.
“Firstly, the advent of decentralized finance and blockchain technology has brought forth the promise of financial democratisation and increased transparency, positioning Bitcoin as a key player in this transformative landscape,” Solomon said.
The appeal of BTC as a decentralised store of value and its ability to facilitate global transactions without intermediaries contribute to its widespread acceptance.
BTC as a safe haven investment
Gold has long been regarded as a traditional safe haven asset. When asked if BTC can offer similar characteristics of a safe haven investment, Rangar highlights Bitcoin’s scarcity and decentralisation.
“However, he acknowledges that its shorter history and volatility compared to gold may influence investors’ risk perceptions,” he said, explaining that as the market continues to matire, the virtual asset’s status may strengthen.
So, what are the main advantages of investing in BTC compared to gold? Rangar points out that virtual currency’s borderless nature, accessibility, and potential for high returns are key advantages. “Unlike gold, which has stood the test of time, Bitcoin’s relatively short history poses challenges in predicting long-term performance,” he explained.
“Gold’s centuries-old reputation and historic role as a value store during economic uncertainty contribute to its traditional safe haven status. As the market matures and institutional adoption grows, Bitcoin may develop further as a safe haven, but investors often approach this prospect cautiously, recognizing the need for continued validation and market stability.” Solomon explained.
Inherent risks and disadvantages of BTC investment
While acknowledging BTC’s advantages, Rangar highlights the risks associated with investing in the cryptocurrency. Rangar notes that price volatility, regulatory uncertainties, and market sentiment shifts are among the risks associated with Bitcoin investments.
The CEO contrasts this with gold’s enduring history, posing potential challenges in predicting Bitcoin’s long-term performance, saying that gold has “stood the test of time.”
According to Solomon, a key advantage of the virtual asset is “the potential for higher returns,” attributed to “Bitcoin’s relatively young and dynamic market.”
Bitcoin as an inflation hedge
Regarding BTC’s role as a hedge against inflation, Rangar explains that Bitcoin’s capacity to serve as an inflation hedge lies in its fixed supply—an essential characteristic.
While gold has a longer track record in this aspect, BTC’s digital and fungible nature, as well as its scarcity, position it as a contemporary choice for investors looking to safeguard their assets during inflation.
Rangar says that it is important to recognise that variations in market maturity and “investor sentiment can influence the performance of both assets under diverse economic conditions.”
“Both assets share a capped supply,” says Solomon, explaining that this theoretically protects against the devaluation of fiat currencies.
He explained that while some investors view bitcoin as a modern inflation hedge, it is crucial to recognize the distinct historical track records and the evolving narrative surrounding each asset.”
The comparison between BTC and gold as investment assets is multifaceted. While digital currency offers features such as decentralisation and a finite supply, gold has a long-standing reputation as a safe haven asset. Investors must carefully consider the characteristics, risks, and advantages associated with each asset before making investment decisions.
In an interview with Bhaskar Laxminarayan, Chief Investment Officer, Asia for Julius Baer in September, he said, “Gold is a difficult topic,” he said, “How much can you carry gold around? Physically, it’s impossible. I think to me, Bitcoin is a better alternative than gold in that sense.”
He noted that while Bitcoin has emerged as a digital asset with intrinsic value, other cryptocurrencies should be treated cautiously due to their role as technology platforms.
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