With inflation on the rise and geopolitical tensions at boiling point, there’s a lot to be said for owning bitcoin and gold right now. But as for which one could come out on top, that depends on a few factors – not least their effectiveness as stores of wealth and their scarcity. So let’s take a look at each of those in turn, and see which one really is the best investment.
Which is the better store of wealth?
Gold has been a formidable store of wealth for thousands of years. Of course, it’s difficult to quantify how its purchasing power has changed throughout history, but the fact that it’s survived for so long speaks for itself.
There’s an old saying in investing: “Own gold and hope it doesn’t go up.” Because when gold’s on the rise, everything else is probably going down. The yellow metal’s not just survived bear markets, after all, but thrived in them:
Bitcoin has only been in operation since 2009, so it doesn’t share gold’s long-term track record of wealth preservation. But in bitcoin’s brief lifespan, it’s become the fastest asset in history to go from zero dollars to a trillion in market size. So despite its volatility, you could say bitcoin’s been storing value, and then some.
Still, it’s yet to be tested as a preserver of wealth in prolonged stock market downturns. After all, bitcoin was conceived in the depths of the 2008-9 market meltdown. And despite the odd volatility scare, the S&P 500 has been in a raging bull run ever since:
So while bitcoin’s seen a meteoric rise since its inception, it’s still got a few more punches to take before standing toe-to-toe with gold as a long-term store of wealth.
Which is the more scarce asset?
Gold and bitcoin are both scarce, that much is clear. But to work out which is the hardest to come by, we’ll want to use the stock-to-flow ratio
The S2F splits the supply of a commodity into two buckets:
- the total supply that’s already been mined.
- the amount of new supply mined last year.
To get the S2F, we just divide the stock by the flow. A higher S2F value implies it would take more years to mine the current supply. Therefore, a higher S2F means the asset is scarcer.
Mining data from blockchain.com puts bitcoin’s current S2F at 57 years, while data from the World Gold Council gives us a S2F of 58 years for gold. So that suggests gold is slightly scarcer than bitcoin right now.
But that’s about to change: the number of new coins that bitcoin miners mint with each transaction block halves every four years, and around 90% of all bitcoins have already been mined. We also know that an extra 25% of additional gold supply – around 53,000 tonnes of gold – is still buried beneath the ground. So while gold is currently harder to come by, things won’t stay that way for long.
What about their technicals?
We’ve seen gold shine recently against a gloomy backdrop of growing economic and geopolitical uncertainty, even as bitcoin’s performance has been rather dim. That said, gold and bitcoin both look interesting right now from a technical analysis standpoint.
Gold has been consolidating between about $1,700 and $2,000 an ounce for over a year. That’s had the effect of turning its previous price resistance from 2011/2012 into support. Provided this support holds, gold has a solid base from which to run – especially if the current stock market rout continues.
Bitcoin, meanwhile, is trading around $38,000 as I write this, and it’s up almost 15% since last month’s low. Chartwise, it looks like it might be forming a massive bullish ascending triangle. If the king of crypto can stand its ground without rolling over here, it could give gold a run for its money later this year.
So which is the better buy?
If you’re after safety in these uncertain times, gold’s long term track record gives it the edge. And with the world’s most experienced store of value now approaching the key psychological level of $2,000 an ounce, it’s certainly got a lot more momentum on its side than bitcoin.
But unlike gold, bitcoin is down over 40% from its previous all time high, and there’s a lot of bearish sentiment in the crypto market right now. In the past, buying bitcoin when markets are this fearful has often led to superior long-term results.
Bitcoin also has a much smaller market size than gold, so in theory, its upside potential could be a lot higher. So while gold may look the fiercer contender in the current market environment, I wouldn’t be surprised if bitcoin delivered the knockout blow…
