Bitcoin vs. Gold: Which Is a Better Store of Value?

Since it was created in 2009 by the pseudonymous Satoshi Nakomoto, Bitcoin has skyrocketed in price, garnering worldwide attention. Since April 2021, Bitcoin’s market capitalization has crossed the $1 trillion mark. This has resulted in many investors turning to the popular cryptocurrency as a store of value when comparing Bitcoin vs. gold.

Traditionally, investors and commodity traders have stored their wealth either in property, stocks, bonds or gold. Gold has generally been a safe hedge against rising prices over extended periods, but digital currencies are a new asset increasingly viewed as a store of value, in addition to being a means of day-to-day transactions. Bitcoin has accordingly gained a reputation as “digital gold.” 

Let’s look at the two most prominent options today as we compare Bitcoin vs. gold, and how they stack up against each other when it comes to preserving their value — and your wealth — over the long term.

What Is a Store of Value?

A store of value is an asset that can be reposited and retrieved without losing its value over time.

Using this definition, it’s evident that fiat money is a poor store of value. Cash is helpful as a day-to-day medium of exchange and a way to keep short-term liquidity, but it doesn’t hold its value well over time. 

There have been over 50 recorded episodes of hyperinflation in different monetary systems worldwide. Hyperinflation occurs when money loses value at a rapid rate, about 50% per month. It’s characterized by a sharp increase in the cost of goods and services and a corresponding loss of purchasing power. While hyperinflation is rare in developed countries, inflation itself is quite common. 

Inflation is a standard tool used by governments around the world to control the supply of money. Governments slightly devalue their currencies each year as a way of incentivizing people to increase spending or investment, in the hope this will stimulate economic growth by creating more jobs. 

This means that your money loses value over time, so storing your wealth in an asset that maintains value is the only way to keep up. That’s why people invest in stocks, bonds, real estate and other assets that are likely to appreciate or retain their value over time. 

However, even though they’re preferable to cash, these investment vehicles pass through boom and bust cycles. To make matters worse, their price movements are correlated — so that market conditions which affect one are likely to affect others. 

Therefore, an asset that is immune to market vagaries is essential. This is where the Bitcoin vs. gold argument comes in. For thousands of years, gold has been the world’s primary store of value. It has outlived the monetary systems of countless empires and city states, many of which no longer exist.

Investors typically switch to assets like gold and Bitcoin in times of market turbulence since they don’t move with the rest of the market. In fact, their value usually grows in adverse market conditions as investors move their funds over in bulk. When measuring Bitcoin vs. gold, investors consider them “safe havens” because of its stability. Even if investors don’t make significant gains, they’re confident of retaining the value of their wealth.

Why Is Gold a Popular Store of Value?

Before even comparing Bitcoin vs. gold, it’s important to understand why gold holds so much appeal among long time investors. Money has been used as a medium of exchange since human civilization realized the limitations of the barter system. Various materials have been used as currencies, including bones, sticks, cowries, livestock, metal and paper. Only gold has maintained its value and appeal over the ages. The first signs of gold coins in history go as far back as 500 B.C.

Humans have valued gold because of its unique properties and beautiful appearance. They see the precious metal as a means of passing on and preserving their wealth from generation to generation. Since gold is an inert metal, it doesn’t oxidize (rust) or react with other elements. Its versatility also means gold can be melted and worked into coins.

Throughout modern history, many countries have adopted the gold standard monetary system, with the U.S. following suit in 1879. The term “gold standard” refers to a monetary system in which the value of paper money is backed by gold that’s stored in the government’s possession. 

While this system is effective in fighting inflation and deflation, it limits the ability of governments to freely print their own currencies. This has become an issue for governments attempting to fund wars. The U.S. started moving away from the gold standard in 1933. In 1971, in order to avoid an inevitable run on gold reserves, the Nixon administration halted convertibility, meaning that other countries could no longer redeem their dollars for gold. By 1973, the government scrapped the gold standard altogether. 

Eventually, the U.S. dollar became the world reserve currency, and many global currencies pegged their exchange rates to it, rather than gold. 

Why is gold held in such high regard as a store of value? Throughout history, gold has retained its value as insurance against uncertain times. Characteristics that enhance its tremendous value include durability, scarcity, portability, convertibility — and emotional appeal since shiny objects tend to be more appealing. 

Gold also has practical uses. It’s been used for making jewelry since antiquity and, more recently, manufacturing electronic components. The supply is low, steady and predictable, since gold must be mined from the ground and processed. Therefore, gold has little correlation to other asset classes, such as stocks and currencies. 

Investors who are wary of stock market swings have found comfort in gold. Precious metals have been helpful as a hedge in market corrections. Even if its value doesn’t rise, it tends to remain static while other assets decline. These factors contribute to the long-standing popularity of gold as a solid safe-haven asset. 

Now, Bitcoin is threatening to steal gold’s shine as the premium store of value. But how does this digital asset measure up to the original store of value in our comparison of Bitcoin vs. gold?

Why Is Bitcoin a Store of Value?

Unlike gold, which is used primarily to make jewelry, coins and some electronic components, Bitcoin doesn’t have industrial uses per se. However, it can be accepted as a means of exchange. 

Bitcoin is inherently a store of value — because it’s durable and scarce. The overall supply of Bitcoin is limited to 21 million, and there will never be more than that amount. 

Also, Bitcoin is a decentralized digital asset that operates without being controlled by central banks or governments, relying on a global network of nodes and miners who make this possible. This gives Bitcoin users some level of privacy and increases its security. An ideal store of value should function as a means of exchange so that it can be converted as needed. Bitcoin can be exchanged because it’s fungible, portable, divisible and widely adopted.

Now that both assets have been discussed let’s compare Bitcoin vs. gold side by side.

Bitcoin vs. Gold

It’s tough to avoid the comparisons between Bitcoin and gold as their similarities are striking. They both make a good store of value and a safe haven in a sea of market turbulence. Here, we compare Bitcoin vs. gold by examining the factors that give them their value.

Scarcity

The primary characteristic of a good store of value when measuring Bitcoin vs. gold is scarcity. If an asset is easy to obtain or simply abundant, then it’s easy to increase its amount. However, as a result, the price plummets, making it a poor store of value. On the other hand, when supply of an asset is limited, increasing demand increases the asset’s price, retaining and growing its value.

Scarcity is one of gold’s key properties, giving it an edge over other metals and materials as a store of value. It’s relatively rare, expensive, and labor-intensive to mine and process. Accordingly, it isn’t easy to increase the supply of gold. So when demand for gold rises, it isn’t easy to increase the supply and fill the market need. Compared to other metals such as silver and copper, which are more abundant and easier to mine, gold is rarer, which has made it the dominant store of value over the ages.

But you know what’s even scarcer than gold? Bitcoin. While gold is relatively scarce, Bitcoin is absolutely scarce. Only 21,000,000 Bitcoin will ever be in existence, and no new one will be mined after 2140. Even though gold has been mined for centuries, the earth still holds metal to be mined.

For scarcity, Bitcoin has a fixed supply, and so it’s a better store of value than gold.

Fungibility

Fungibility describes the quality of being mutually interchangeable and uniform, which is a characteristic of a good store of value. This quality facilitates exchange because fungibility means all equivalent units of the asset have equal value and can be exchanged across diverse markets and locations.

A Mercedes and a Jeep are both cars, but they cannot be directly exchanged because each vehicle has a set of distinct and unique features that affect its value. However, gold is generally fungible — an ounce of pure gold holds the same value as an ounce of pure gold anywhere. But in some cases, gold is non-fungible. 

Gold with impurities isn’t worth the same as pure gold. It’s not very straightforward for anyone to easily test gold purity, and there’s the added hassle of using the same measurement standards worldwide. 

On the other hand, in the Bitcoin vs. gold argument, Bitcoin is always fungible. One Bitcoin is the same as any other Bitcoin and, even more importantly, cannot be counterfeited. In summary, Bitcoin is more fungible than gold.

Divisibility

A store of value should be easy to split into smaller units for a more accurate transfer of value. This is where gold falters. Gold is a dense metal, so a small amount still represents a large amount of value. This makes it hard to transfer smaller units of value, even with small gold coins. 

This is why paper money became necessary: it made gold easier to divide into smaller, more exchangeable units. However, paper money no longer represents gold, so the divisibility problem with gold remains. Also, dividing gold requires physical effort — melting, weighing, assaying, and minting new coins.

Conversely, Bitcoin has no such problems. Bitcoin can literally be divided infinitely. A millionth of a Bitcoin is called a Satoshi. Therefore, regardless of how valuable Bitcoin becomes, it will still be possible to use it and buy a pint of your favorite lager. In this aspect of the divisibility of Bitcoin vs. gold, Bitcoin is the clear winner.

Portability

When considering Bitcoin vs. gold, one of the key considerations should be the store of value’s portability. Gold is a dense metal and heavy to carry around. Transporting a large amount is expensive, making it inconvenient for long-distance trade. Cross-border regulations concerning gold make it somewhat impractical for international trade.

Bitcoin, in contrast, has no portability issues. As a purely digital asset, Bitcoin, no matter the value, can be stored in a thumb-sized drive or even online, and accessed anywhere in the world with an internet connection.

Transferring Bitcoin is fast and inexpensive. You can safely move an enormous value of Bitcoin in minutes for less than a dollar. This ultimately makes Bitcoin infinitely more portable than gold.

Adoption in Society

Society must accept an asset for it to be a good store of value. This is important, because people tend to value things that have been considered valuable for a long time. Gold has been considered valuable since ancient times by virtually every human civilization, and thus has a great appeal as a store of value. Additionally, gold has practical applications, as it’s used in coinage, jewelry and electronics.

In this regard of comparing Bitcoin vs. gold, gold is far superior to Bitcoin. Bitcoin has been around for little more than a decade, and while it’s gained an impressive level of adoption in a short period, it’s still far behind gold. Many investors and the general public see Bitcoin as a niche that has yet to be fully understood.

Currently, gold has a market capitalization of around $11 trillion, whereas Bitcoin’s market cap is $500 million. Clearly, gold is more adopted globally than Bitcoin. However, Bitcoin is fast gaining popularity.

Government Regulations

The idea of a decentralized currency that isn’t under anyone’s control doesn’t sit well with central banks and governments worldwide. This has led to unfavorable government policies regarding Bitcoin, ranging from strict regulation to outright bans in some places.

No such threat hovers over the legitimacy of gold, making it the clear winner in this aspect of the Bitcoin vs. gold debate.

The Bottom Line

With governments printing money and devaluing currencies, gold and Bitcoin are excellent hedges against runaway inflation rates. Gold has been in use for centuries, and is still a good store of value and a reliable safe-haven asset. However, Bitcoin is the new kid on the block, demonstrating improved scarcity, divisibility and transferability. This ultimately positions Bitcoin as the better store of value when comparing Bitcoin vs. gold.