Will Bitcoin Overtake Gold?

By December 20, 20215 minute read
Will Bitcoin Overtake Gold?

The cryptocurrency market continues to take the world by storm, breaking new records and reaching new heights. November 2021 saw the global crypto market cross the market capitalization of $3 trillion. At the forefront was Bitcoin, crossing the $60,000 mark and reaching an ATH of $68,789 and $1 trillion in market capitalization. Given its impressive growth trajectory, global institutions and corporations have been keen on evaluating Bitcoin’s worth as an asset and investment avenue over the traditional safe-haven asset gold for long.

Despite gold’s redeeming stature as a stable investment, how does Bitcoin serve as a better investment avenue via-a-vis gold? Let’s hop into the head-on comparison: 

Physical Characteristics and Utility

Both gold and Bitcoin are in limited supply. Gold’s limited availability is a direct consequence of its naturally occurring ores. While Bitcoin’s supply is hard-capped at 21 million tokens. The last Bitcoin won’t be mined until 2040. 

Due to its intrinsic value and unique chemical properties, gold is considered one of the most precious metals on earth. It has been considered a safe-haven asset by governments, financial institutions, and investors alike. 

Gold had been part of the international monetary system until the 1930s, after which countries began shedding the gold standard. Besides, its cultural significance as the ‘yellow metal’ for jewellery, coins, and other artefacts make it an essential part of the rituals and day-to-day life, especially in India. 

On the other hand, Bitcoin is a digital coin built on blockchain tech. Its immutability, cryptography, and decentralization make it a safe asset, secure from hackers or malware attacks, and beyond the ambit of any central authority.

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Traditionally, gold has been used to hedge against stock volatility or rein in fiat inflation by financial institutions and governments. However, Bitcoin’s utility as a store of value and payments system has: 

  • Global banks, institutions including JP Morgan, Goldman Sachs, and Barclays, invest in it;
  • Digital payment behemoths including Mastercard, Visa, and Paypal support Bitcoin and other crypto transactions,
  • Global giants, including Microstrategy, Circle, Square, Tesla, etc., invest in it, 
  • Countries including Japan, the UK, the US, Canada accept it as an alternative currency, and 
  • El Salvador (the first country) adopt Bitcoin as a legal tender in October 2021. 

The list isn’t exhaustive. Bitcoin and other major altcoins are becoming essential elements in institutional and corporate portfolios. 

Mark Yusko explained why Bitcoin is now considered the ‘Digital Gold’ and a better investment option over Gold and other traditional assets in a recent interview. According to Yusko, gold has undoubtedly been the ultimate store of value for thousands of years, but it lacks portability and divisibility. Unlike gold, Bitcoin is a digital asset that can be broken down to the smallest unit, ‘Satoshi,’ equal to 100 millionth part of a Bitcoin. 

Past Performance

More than a decade since its inception, Bitcoin has become the most valuable cryptocurrency worldwide. For the longest time, it had been the pet peeve of developers and tech enthusiasts.  Being built from scratch as a tech cum asset class, Bitcoin had its share of scepticism and flak. It remained in the shadows until 2017, when its price grew from $777.76 to $19,497.40 in the same year.  

Post the meteoric rise; Bitcoin continued losing ground, dotted with minor recoveries. In March 2020, its prices plummeted to $5000, but as the year came to a close, Bitcoin’s prices had shot to $30,000, recording a 300% gain. The following year saw a more significant jump as Bitcoin went on to cross the $60,000 mark and record its ATH. 

Bitcoin’s price history has seen shifts through numerous cycles of highs and lows over its comparatively short life, but its network has been gaining value consistently. Also, the pandemic proved to be a game-changer as more people went online and started embracing cryptocurrencies and investing in them. 

On the other hand, Gold had been losing its sheen within the same timeframe. Ordinarily, gold performs well during corrections. Even if it doesn’t grow, it remains stable while others slide down the price charts.

The past two decades have seen gold as a safe-haven asset rising with time, though 2021 conveys a different story. Gold went down by 9% in 2021, while other asset classes, including real estate, equities, etc., showed growth. 

Though Bitcoin’s market capitalization is but a small percentage of gold’s $11 trillion, the speed at which it is rising leads analysts to predict it may not be long before Bitcoin overtakes gold. 

Future Potential: What do the Experts Say

As an asset class, Gold has been acknowledged and embraced as a store of value and has a history in its favour. David Rosenberg of Rosenberg Research points out:

Gold has a historical record of thousand years as a store of value, one-fifth volatility of Bitcoin. Thus it doesn’t even face the same competition risk.”

While cryptocurrencies, though just over a decade old, are steadily gaining traction in the mainstream investment arena. Bitcoin has proven to be a unique asset class built on innovation rather than just being a ‘barren metal.’  Bitinning founder  Kasif Raza opinionates that Gold deserves all the credit it has received till now as an asset class. But Bitcoin is the future

Daniel Ives, MD and Senior Equity Research Analyst at Wedbush Securities, analyses, “Based on the trajectory of this digital gold path and use cases globally, we believe Bitcoin will be a mainstream asset class in the future. While gold has clear value and safety, the upside in bitcoin is eye-popping if it stays on its current course over the next decade.” Bitcoin, with other cryptocurrencies, will lead the web3 protocol entourage in the coming years. It’s worth as a digital asset holds more relevance in a world that is all set to go digital in unprecedented ways.  

JP Morgan opines that Bitcoin possesses a long-term advantage while contending against gold as an alternative currency. Though the younger generation, who aren’t as influential in the market as the older generation, prefers digital assets, digital assets will ultimately gain more significance in mainstream finance. 

Mark Yusko gives two reasons why Bitcoin will add more wealth than any other asset in the coming years. First, it is an uncorrelated asset with a negligible 0.15% correlation to stocks. Such uncorrelated assets as a part of a portfolio lead to exponential returns. Second, people seek innovation-oriented investment, and Bitcoin is the perfect example of the same. 

Bitcoin vs Gold: Closing Notes

If anything that the COVID-19 pandemic taught the world, it was a lesson on savings and investments. Only calculated and sound decision-makers were the ones whose lives were left majorly unaffected during the challenging economic phases stemming from the lockdown. During this time, investing in cryptos increased, despite their volatility, as gold continued to show muted performance while the crypto markets were brimming with activity and trading volumes. 

It would be a very long time before we can expect Bitcoin overtaking gold in the market cap. But Bitcoin, for sure, is proving to be a better investment avenue for millennials and Gen Z that understand tech and spend a large part of their day online. As governments across the globe are led to reconsider the scope of Bitcoin and cryptocurrencies in the conventional economy, investors, too, are seeking ‘the road less travelled. ‘

Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.
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