A Look At Gold and Bitcoin

When it comes to loyalty, people tend to pick a side and stick by it no matter what – whether it’s football teams, political parties, or stocks like Tesla (TSLA). The clash between Bitcoin enthusiasts such as MicroStrategy (MSTR) founder Michael Saylor and traditional “gold bugs” exemplified by Peter Schiff is one of Wall Street’s major debates. While gold has served as a medium of exchange for millennia, Bitcoin’s origins date back to the new millennium. The generational divide is clear – baby boomers prefer gold, while younger generations favor Bitcoin.

Despite their differences, Bitcoin is often referred to as “digital gold” owing to striking similarities. Both assets involve “mining” and are seen as stores of value perfect for hedging against inflation. Furthermore, scarcity plays a role in their allure; Bitcoin boasts a maximum supply of 21 million coins, while gold production is projected to dwindle in the next few decades.

The Impact of Government Spending and Inflation

The unprecedented levels of government spending triggered by events like the COVID-19 stimulus checks and U.S. involvement in global conflicts have propelled the country to record heights of national debt exceeding $35 trillion. Interest on this debt is expected to hit a staggering $1 trillion in the near future. While both political parties have contributed to this debt explosion over the past two decades, there seems to be no resolve in sight. Despite interventions by Jerome Powell and the Fed to curb inflation through higher interest rates, consumer prices have surged by 20% since 2020. While the U.S. remains economically robust, unchecked deficits have a dark history, illustrated by countries like Venezuela and Turkey. In such uncertain times, assets like gold and Bitcoin are essential for protecting portfolios against inflationary risks.

Decoding the Superior Investment: Gold vs. Bitcoin

As a trader who specializes in studying price action and catalyst-driven investing, my long-term portfolio includes both Bitcoin and gold. This diverse perspective enables an unbiased evaluation.

Bitcoin Trumps Gold in Total Returns

Over the last decade, Bitcoin has emerged as the top-performing asset globally, yielding an astonishing average annual return of 693%. In contrast, gold has only managed a modest 5% average return annually during the same period. When it comes to total returns, Bitcoin unquestionably outshines gold.

Better Hedge: Gold or Bitcoin?

The comparison between gold and Bitcoin as stores of value highlights the reality that investors must accept more volatility to secure substantial returns. Since 2012, Bitcoin has experienced significant downturns including a 70% drawdown, two 80% drawdowns, and a massive 90% drawdown. In contrast, gold has encountered a maximum drawdown of 54% over the past four decades. The “store of value” concept pertains to assets or currencies that sustain their worth over time. While Bitcoin has shown remarkable appreciation since its inception, the choice between gold and Bitcoin as a better store of value hinges on the time horizon. For shorter durations of 3–5 years, gold is more likely to retain its value without substantial drawdowns and is less volatile compared to Bitcoin, making it a stress-free asset to hold.

The Tenacity of Bitcoin and Gold

Gold’s enduring legacy as a medium of exchange spanning centuries gives it an innate advantage in terms of survivability. Having stood the test of time, gold is likely to remain a pragmatic choice for investors. Nevertheless, Bitcoin has weathered its fair share of challenges despite its brief existence.

Comparing Gold and Bitcoin as Investments

Sturdy as Gold, Resilient as Bitcoin

While Bitcoin has weathered storms like the Silk Road downfall and Mt. Gox hack, gold boasts an unmatchable legacy as a store of value. The Bitcoin network’s resilience, underpinned by its distributed ledger, stands in stark contrast to gold’s tangible allure for jewelry and electronics.

The Divergent Usability of Gold and Bitcoin

In the battle of assets, the merits of one can be the pitfalls of the other. Gold’s physical nature draws in fans seeking tangibility, while Bitcoin’s digital form appeals to those prioritizing swift transfers and cross-border transactions.

The Demand Dance: Bitcoin and Gold

Both gold and Bitcoin are currently high in demand. Central bank acquisitions surged in 2024, setting new precedents, with nations like China diversifying away from the U.S. dollar. Retail enthusiasm prevails, from Costco’s monthly gold bar sales to retail juggernauts profiting from the cryptocurrency frenzy.

Weighing Your Options: A Gold vs Bitcoin Conundrum

For investors mulling over gold and Bitcoin, the decision boils down to personal preferences. If stability is key, gold may be the sanctuary of choice. Conversely, those daring enough to embrace volatility might lean towards Bitcoin. Remember, in the investment realm, there’s often space for both assets in a well-diversified portfolio.

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Please note: The opinions expressed belong solely to the author and not Nasdaq, Inc.