Bitcoin was once a joke. Then, Bitcoin was a fad. These days, after proving some staying power beyond being the new tulips, Bitcoin gets respect. Bitcoin has become mainstream with financial publications publishing predictions and analysis without accountability, just like it does with more traditional types of investing. Articles breathlessly ask how high can bitcoin go. But, is bitcoin better than gold?
Is Bitcoin a Good Investment?
As a former financial advisor, I’m always cautious about telling people what is or is not a “good investment.” The better option is often to present the realities of any investment and allow investors to draw their own conclusion.
Why Invest In Gold?
Of course, to understand whether bitcoin is the new gold, you have to know why people invest in gold in the first place.
There are several reasons people invest in gold.
One of the most well known is as an inflation hedge. While governments can print money, and inflation can take off with, or without, monetary policy failures, gold prices are tied to a physical commodity whose supply cannot be manipulated by the stroke of a pen.
This brings up one of the other reasons people invest in gold. Gold prices are not correlated with any one currency. While euros may fluctuate against dollars and the yen, gold prices do not move in sync with those correlations. So, unlike U.S. stocks, which could be more or less valuable in other countries merely based on exchange rate changes, the price of an ounce of gold is constant across the globe, whether you’re paying in dollars or yen.
Finally, for doomsdayers, gold represents a physical asset which, theoretically could be bartered or traded if money ever fails.
Is Bitcoin Like Gold Investing
In what way is bitcoin like gold?
Like gold, bitcoin pricing is not correlated with stock prices. Bitcoin may move in the same direction sometimes, but almost always by varying amounts. Bitcoin can, and does, frequently move in the opposite direction of stock prices making it a way to hedge against stock market volatility.
Bitcoin is also like gold in that it is not tied to any paper currency. Bitcoin pricing is uniform across the globe with differences among countries due entirely to the differences in the value of each country’s currency.
Bitcoin is kind an interesting holding for a specific kind of doomsdayer. Consider a world where the U.S. government should falter or fall, but where the internet and communications networks still function. Unlike dollar-backed assets, bitcoin would theoretically retain its value around the globe. Bitcoin, would, however, be uniquely useless in the more typical doomsday scenario where society at large fails and luxuries like internet access and maybe even electricity no longer function.
Another major difference between bitcoin and gold is that bitcoin can be spectacularly volatile. Although gold prices can fluctuate greatly, its ups and downs are neither as deep, nor as quick as those of bitcoin. This makes bitcoin great for speculation, maybe not as good for removing portfolio volatility.
Bitcoin Is Not Better Than Gold
For the right investor, bitcoin can be an interesting and profitable addition to your portfolio, but for most investors bitcoin is not better than gold. If you decide bitcoin is right for you, consider how and where you want to add it to your investments, but don’t swap it out for your gold investments.
As always, this is not an offer to buy or sell securities. This article is informational in nature and does not represent individual advice. For advice specific to your situation, consult your financial advisor or tax professional. As of publication, the author owned a token amount of bitcoin, although this could change at any time without notice.