Today, if you ask financial veterans for their thoughts on the gold vs. bitcoin debate, most will tell you that gold is the better bet.
However, despite gold’s long-standing presence in the history of our economic systems, bitcoin’s short 15-year existence is already proving it to be the more popular choice in today’s financial climate.
Gold Vs. Bitcoin ETFs
Before digging into the weeds, first of all, just take a look at the numbers we’re seeing for the Bitcoin spot ETF that went live at the beginning of this year.
Vetle Lunde, a senior analyst at K33 Research, gathered and shared data on first-quarter spot ETF performance for gold vs. bitcoin. In the first quarter of its launch, 937 firms reported investments into Bitcoin spot ETFs, compared to just 95 during the first quarter of the gold spot ETF launch after November 2004.
Nearly 10x the interest among professional firms. But what’s even better is that this number also only represents about 18% of all inflows to Bitcoin spot ETFs, totalling $11 billion. The other ~$48 billion (82%) came from retail, so it’s not just the big fish who are taking interest in bitcoin instead of gold.
Wells Fargo also took note of bitcoin’s impressive ETF performance. While it took gold more than five years to surpass $50 billion in assets under management (AUM), bitcoin crossed that threshold in just 57 days.
Why might this be?
Is it purely speculative? A new shiny investment vehicle for Wall Street to fawn over?
Or are these numbers suggesting a larger message at play here?
Understanding Gold Vs. Bitcoin
If you can’t understand why someone would prefer bitcoin to gold in 2024, comparing their monetary composition directly demonstrates the uniquely advantageous store of value (SoV) properties bitcoin carries that gold does not.
Scarcity
- While gold is difficult to produce, it still suffers from a ~2% inflation rate each year – a rate which is progressively getting larger as our technology improves.
- On the other hand, bitcoin is perfectly scarce. Satoshi’s code for bitcoin defines the 21 million coin limit, but bitcoin’s proof-of-work consensus mechanism creates physical restraints that enforce this limit, along with an ever-decreasing inflation rate as bitcoin becomes harder and harder to mine over time.
Divisibility
- While anyone can melt up gold and divide it up into coins, bars, or pieces of jewelry, there is only so much dividing you can do before the gold becomes worthless. A speck of gold the size of a single grain of sand isn’t very valuable if it gets blown into the wind the moment I walk with it outside.
- On the other hand, since bitcoin is entirely digital, we can divide it infinitely into as many units as we’d like. “Satoshis” or “sats” are the socially agreed upon unit of division today, with 100 million sats equalling one bitcoin. However, there is no saying that we can’t denominate into even smaller units one day if needed. If bitcoin’s purchasing power became so great that a loaf of bread only costs you 0.01 sats, the protocol allows for further denomination to make the measurement easier to understand. You could have 100 million “bits” in a single sat, and then 100 million “coins” in a single bit, etc.
Durability
- While gold is one of the sturdiest and longest-lasting materials available to us on earth, nothing of the natural world comes without a half-life. Even gold will corrode and break down over millions of years.
- On the other hand, bitcoin is the first technology ever created that could theoretically store value perfectly for millions of years, in the same way that the internet could theoretically store our information indefinitely. As long as there are people (or artificial intelligence) here to make use of them, distributed networks like the internet or bitcoin are more resilient than any naturally occurring resource in the universe.
Portability
- While you can break up small amounts of gold into smaller pieces to travel with, what if you need to send $1 billion dollars’ worth of gold overseas? Suddenly you have an expensive logistical nightmare on your hands, involving shipping costs, protection costs, insurance costs, and a host of other headaches that make moving gold around the world not very practical or affordable for the everyday person.
- On the other hand, users can send bitcoin to one another over its decentralized network freely and instantly. If you store that same $1 billion in bitcoin instead of gold, now all you need to move it is a device that’s connected to the Bitcoin network, be it your phone, computer, tablet, or something else.
Fungibility
- While gold is entirely fungible, it’s hard to verify and easy for someone to fake, especially in today’s technological climate. Without taking additional time to verify the purity of gold, it’s not practical to conduct trade between two people using gold. You either have to trust that the gold is real, or slow down the transaction to verify it.
- On the other hand, every bitcoin was designed to be the same as any other. With a quick reference to the blockchain using a block explorer, you can verify an authentic Bitcoin transaction on the Bitcoin network the moment that it takes place.
Transparency
- While gold is widely established and accepted, you have to rely on trust in order to effectively scale it as a widely-used money. Trust in money transmitters, trust in custodians, trust in politicians to uphold favorable custody laws for your gold. History has shown time and time again how this trust is broken though. The only way to avoid trust entirely is to conduct each and every trade yourself, directly, gold in hand. But then you hit the scalability roadblock once again.
- On the other hand, the Bitcoin protocol is fully open source and visible for anyone to see. The ledger organizes each and every transaction with time-stamped details of the amount, recipients, and costs to facilitate the transaction.
Where gold tries to solve these problems, it creates inescapable tradeoffs elsewhere that inherently limit the users’ freedom.
We can develop currencies backed by gold that solve for portability, but we sacrifice transparency and introduce counterparty risk. Only bitcoin lets us move value anywhere in the world entirely trustlessly.
We can cut out intermediary risk by conducting the transfer directly from person to person, but we find ourselves fighting against scalability again as the costs to move the gold become too high to be practical worldwide. Only bitcoin lets us move value anywhere in the world at scale.
The Nation State Movement
While the ETF performance is telling, one could argue that recency bias is getting investors excited about a new product, and that ultimately doesn’t tell us how popular bitcoin is relative to gold.
Okay. So throw out the ETFs entirely. What do we see when looking at pure adoption rates around the world between the two assets?
It’s no question that gold acquisition is still in full swing.
The Federal Reserve themselves highlighted the movement away from the US Dollar towards gold in five heavy-hitting countries: China, India, Russia, and Turkey. A “small number of countries”, according to the Fed, that actually represents a combined 3 billion people – or 37% of the world’s population – moving towards de-dollarization.
The visual below that the Fed shares from International Monetary Fund (IMF) data is also quite telling as to the increasing gap between the rich and the poor. The “Big 4” currencies – the dollar, yen, euro, and pound – have all topped out in central bank reserves since 2001 as they continue to replace soft money (fiat) with hard money (gold).
Meanwhile, less wealthy nations’ soft money reserves have remained on a steady incline:
It’s no wonder why nations outside of those holding the “Big 4” can’t keep up.
Data from the World Gold Council also shows how global central banks doubled up on their purchasing of gold following the coronavirus pandemic in 2020 and an unprecedented wave of QT:
And if we take a look at Q1 holdings of gold in 2024 in general, here is the breakdown:
Okay, so they’re stacking gold heavily. But what about bitcoin?
Bitcoin adoption is fervently growing across the world – faster than the rate of internet adoption – alongside central banks’ movement towards gold. The trend here: hard money is in.
The World Population Review has a helpful geographic heat map that visualizes the growth of Bitcoin mining in every country. The darker the color, the higher the hashrate in that country.
Obviously the United States and China are leading the race, but looking at the big picture, it’s clear that nations around the world are starting to follow in the world leaders’ footsteps. It would be a better question to ask which countries are not mining bitcoin, as the majority of the world is getting involved in one way or another.
Certain parts of this map may look unimpressive, like the mostly grayed-out Africa, however, Chainalysis data suggests that pure adoption of bitcoin in the continent is heating up fast, with Nigeria, the wealthiest and largest populated country in Africa, taking the lead in adoption rate.
The move towards hard money is in full swing, whether that be gold or bitcoin. The good news, if you’re reading this, is that central banks are still in denial of the superior store-of-value properties that bitcoin offers.
But smaller fish are starting to catch on.
The Corporate Movement
Momentum for Bitcoin adoption is only picking up in the corporate arena as well.
- MicroStrategy: The first public company to adopt a Bitcoin standard, MicroStrategy started converting its cash reserves to bitcoin in August 2020, and has since stacked over 215,000 BTC, securing 1% of the total supply. Since that point, $MSTR stock is up nearly 1,200%.
- Metaplanet: In April of 2024, the Japanese firm announced that they’re taking inspiration from the Microstrategy playbook and adopting bitcoin as a treasury reserve asset. So far, Metaplanet added an estimated ~140 BTC, worth $9.2 million, to its balance sheet. Its stock shot up 172% since then.
- Square: Following these movements, the payment company announced it would be investing 10% of its gross profits into bitcoin after stacking more than 8,000 BTC since October 2020.
- Semler Scientific: As a medical tech company, its chairman announced a purchase of 581 bitcoin, attributing the move to inspiration from Michael Saylor’s Microstrategy.
In total, 41 publicly-traded companies now own bitcoin on the balance sheet.
Game Theory
Bitcoin analyst Mark Harvey lays out a clear picture of the game-theoretical movements driving bitcoin adoption among corporations:
“Game theory suggests that all companies will have to adopt the Bitcoin standard, or they will lose to a company that does.”
Nation states understand this dynamic as well. If bitcoin is to become the superior treasury reserve asset, then if one country wants to reject it, that presents an opportunity for another to adopt it themselves. We saw this play out live between the United States and China. After China cracked down hard on Bitcoin mining in 2021, hashrate fled from the country to other strong nations, mostly the United States:
You can see China marked in black, the US marked in blue, and the closing gap in mining distribution between the two companies. This data only goes to January 2022, but we know now that the US is the dominant country in Bitcoin mining after China maintained the lead for the first 13 years of bitcoin’s existence. And yet despite the ban, Chinese adoption of bitcoin is catching on too quickly for them to snuff it out, so they are changing their tune and following the USA’s lead to try and capture the Bitcoin network through custodial ETFs.
One man’s trash is another man’s treasure, and bitcoin is proving itself to become more and more treasured among nations looking to maintain their competitive edge, just like corporations are.
Don’t Sink With The Ship
Especially if you really don’t have to.
Many people understandably cling to gold since it’s worked for them in the past, but new paradigms emerge to break existing ones.
Those hoping to find a store of value in anything that is not bitcoin, not just gold, will be in for a rude awakening throughout the coming decades. Just ask Peter Schiff, who’s been clinging to gold long before bitcoin was even created, yet failed to adapt when confronted by it in 2011.
Or savvy real estate investors, who’ve experienced great returns on their investments since 2011, relative to fiat devaluation.
The average sale price of a home at the beginning of Q1 2011 was $268,000.
Today, that number has ballooned to over $513,000 – a ~91% increase in fiat purchasing power.
But what about relative to Bitcoin-denominated purchasing power?
In the same timeframe, the price of bitcoin rose more than 23,600,000%. So at the beginning of 2011, with one bitcoin trading at ~$0.30, one house was worth about 893,333 BTC. Today, despite the average value of houses rising by roughly 91%, one house is now worth only 7.33 BTC (assuming a rounded $70,000 price tag for one bitcoin).
893,333 bitcoin, all the way down to 7.33 bitcoin. That’s more than a 99.9% reduction.
https://x.com/thomas_fahrer/status/1781603690627186974
Real estate investors and the Peter Schiffs of the world alike will have to reconcile that 99% devaluation in purchasing power relative to bitcoin in the last 13 years. In fact, everyone has and will continue to experience the same drawdown, relative to bitcoin, until they learn to adopt it themselves.
What’s critical to understand is not the short-term, minute comparisons between asset classes to bitcoin – whether it be gold, real estate, commodities, stocks, or anything else. What’s important is realizing that within the new monetary paradigm that bitcoin presents, everything that we can produce more of will underperform bitcoin’s perfectly scarce supply on a long enough time frame.
Play The Right Game
Bitcoin realigns our financial system with the natural forces of deflation.
On a fiat standard, policy makers are able to manipulate the money supply to their advantage – spurring on inflation to grow the prices of their assets relative to the currency, at the expense of all currency holders looking to buy the same assets. Thus making gold a viable store of value if you are trying to preserve your purchasing power in fiat.
On a Bitcoin standard, holding assets long-term is a losing man’s game. Instead, holding onto the money itself will serve you better long term, as technological deflation naturally lowers the costs to produce these assets all around you. Thus making gold a very poor store of value if you are trying to preserve your purchasing power in bitcoin.
This does not mean that all other assets will cease to become relevant on a Bitcoin standard. It simply means that over time, bitcoin will make people’s financial lives easier, thus freeing up all the “non-useful” capital tied up in other investments that people hold purely to outpace inflation. How the market prices these things in the short term is anyone’s guess, but in the long term, we can operate knowing that reproducible goods, services, and assets will all net you less unproducible bitcoin over time.
In this light, it’s no question who the winner is between gold vs. bitcoin.
Get off zero bitcoin today. Trade your horse and buggy in for a new Ferrari. If you hope to win the race, you will need it!
Thank You For Reading
If you found this article helpful, please consider sharing it on social media. You can also help us out with any of the following.
- Follow Us On Twitter and Nostr.
- Support one of these Bitcoin businesses.
- Make a value for value donation so that we can continue to publish more Bitcoin-only content.
Any support we get from bitcoiners is what keeps this project alive.