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This is why Bitcoin is a better investment opportunity than gold
These two resources always seem to draw comparisons.
It was a great time to be an owner Bitcoin (Bitcoin 0.27%). Since the start of 2023, the leading digital asset has increased by 307%. The approval of spot exchange-traded funds (ETFs), as well as the April halvingthey have been recent catalysts.
Investors may be surprised to know that gold is too close to historical highs thanks to the bullish sentiment. Bitcoin and this precious metal are often compared with each other. But the leading cryptocurrency is a better asset to own.
How Bitcoin and gold are similar
Market participants like to compare Bitcoin and gold. Therefore, it may be helpful to first understand some similarities between these two.
Scarcity is something investors should be aware of. A maximum supply limit of 21 million coins is engraved in the Bitcoin software. And in the earth’s crust there is a certain amount of gold.
The prices of assets that have a fixed supply should, in theory, rise as demand also grows. This basic economic principle helps explain why gold has been seen as a popular store of value for long periods of time.
Furthermore, there is some use here too. Gold is mainly used in jewelry, but is present in some industrial contexts. Likewise, Bitcoin’s value comes from the fact that it is a totally decentralized network with no single responsible entity, thus reducing transaction costs when sending money to someone across the world.
The Advantage of Bitcoin
At a high level, it’s easy to see how Bitcoin and gold are both scarce. Furthermore, both have usefulness in different situations. But if we dig deeper, we will easily see how the best cryptocurrency is a superior investment.
Let’s go back to the topic of scarcity. Investors may think that gold has a fixed supply limit, but this couldn’t be further from the truth. According to the US Geological Survey, 77% of all the gold in the Earth’s crust has been mined. As a result, there is still a considerable amount of gold left to be mined.
If, for whatever reason, demand for gold increased in a short period of time, mining companies would be incentivized to invest aggressively to expand their operations in order to target areas around the world that may be difficult to reach. In other words, the gold supply schedule could be changed based on demand trends.
This is where Bitcoin stands out. It’s absolutely finished. The previously mentioned 21 million coin supply limit is highly unlikely to change, unless Bitcoin stakeholders want to completely undermine the value proposition of the entire network. Since Bitcoin’s supply schedule cannot be changed, its price has generally been volatile.
Compared to gold, which is a physical asset, Bitcoin is a digital asset. And that means it’s easier to store and transport. Bitcoin can also be split into much smaller units, while still being acceptable in certain transactions. Try going to a restaurant and clipping a gold coin to pay the bill.
Furthermore, investors should not ignore the store of value debate, which is probably the aspect most considered when comparing Bitcoin and gold. Here, Bitcoin shines brighter than the precious metal.
Ultimately, saving and investing means increasing your purchasing power over time. Over the past five years, the price of Bitcoin has skyrocketed by 718%. This means that a $1,000 investment in June 2019 would be worth nearly $8,200 today.
The price of an ounce of gold, however, increased by only 73% in the same period. And this stretching has resulted in major disruptive developments, such as the pandemic, inflationary pressures, higher interest rates and general economic uncertainty.
Going forward, Bitcoin and gold will likely continue to draw comparisons. But I think in the next five to 10 years the major cryptocurrency will look like the best investment opportunity.
Neil Patel and its clients have no position in any of the securities mentioned. The Motley Fool has positions and recommends Bitcoin. The Motley Fool has a disclosure policy.