Which asset is a better investment – gold or Bitcoin?
If I had to choose between gold and Bitcoin as an investment, it would be hard to go past the allure of the yellow metal.
After all, gold has been around for millennia and has been widely used as both a store of wealth and medium of exchange. It also has some intrinsic worth as both jewellery and as a handy material in the manufacture of various products, such as electronics. In short, gold is pretty to look at, highly durable and a good conductor of electricity.
That said, gold has seen fairly mixed price performance in recent years, even in the face of a post-Covid surge in global inflation. Whilst many thought gold should have done better given today’s high inflationary environment, aggressive US Federal Reserve interest rate increases and a rising US dollar have so far kept longer-term inflation expectations in check and limited any investor stampede to gold as an inflation safe haven. Assuming we eventually return to a low and stable inflation world, gold’s upside price potential may also remain reasonably contained.
What of Bitcoin? The main supporting argument behind Bitcoin is that, like gold and fiat currency, it could also eventually become a widely used medium of exchange (or “money”) and a store of value. And like gold, the supply of Bitcoin is limited, meaning its value should rise over time as it becomes more widely adopted. But while the future upside of Bitcoin is potentially significant, it also remains highly uncertain.
As yet, Bitcoin has not been widely adopted as a form of money while its high price volatility suggests it’s not yet a great store of value either. Financial regulators are also nervously watching its development, and could try to curtail its use if its rise ever threatened their control over national monetary systems. And while the supply of Bitcoin is apparently limited, there’s a growing array of other cryptocurrencies competing for investor attention.
Further, in the same way that aggressive interest rate hikes from the Federal Reserve have placed downward pressure on gold, Bitcoin and other cryptocurrencies have seen a drawdown during this tightening cycle.
Of course, time will tell how both gold and Bitcoin fare. Either way, it would not be unreasonable for investors to consider allocating at least a small part of their portfolio to both gold and/ or cryptocurrencies as a source of diversification.