Bitcoin is often called “digital gold”, but what makes it different from real gold? Which one is better for investment? Let’s check this out!
Since Bitcoin appeared in 2008, it has gradually started to increase in value. Its initial price was just $0.08. At one point, the world heard about a man from the USA who ordered a pizza and paid with Bitcoin, and after a few years he regretted it because he could have become a multimillionaire.
So if we look at the chart that shows us the historical price of Bitcoin since 2008, we can certainly see a significant increase in the price of this asset over recent years.
What a difference! From just $0.08 to approximately $37,000 today! Many people might say: “why didn’t I invest? Why did I doubt the possibilities of Bitcoin?” Well it’s not that simple. We are only human and we don’t know what will happen tomorrow, let alone over 10 years!
Ok, so what about the gold price? It has been known since ancient times, but it is enough to look at a historical chart from the last century to see that the value of this precious metal, the same as Bitcoin, has increased dynamically. Look:
We then have the first similarity visible, which is very important for us, average investors. Both charts show that both Bitcoin and Gold behave very similarly when it comes to the value of these assets.
In both cases, the asset extraction process is expensive and time-consuming. We all know that gold, like other natural resources, is found in the ground and needs to be mined. It requires hard work and appropriate financial resources. Today, we have machines that help us obtain gold from the ground, but they must be operated by properly trained staff who also need to be paid for their work.
Operating these machines is, of course, energy-intensive, and given the fact that the work is ongoing all the time, you have to dig deeper and deeper.
All this generates very high costs, which of course also affects the price of gold. But the work doesn’t end there. The extracted gold must be properly processed, after all, no one buys this metal in its raw form. It needs to be made into jewelry, bars, coins, etc.
It’s similar with Bitcoin. Although we do not physically extract it from the ground, the entire process of obtaining this cryptocurrency is long, labour interactive and expensive. To obtain Bitcoin, you need expensive equipment. We’re talking about really solid computers with very good graphics cards, and devices called cryptocurrency miners. These devices must have enormous computing power, thanks to which Bitcoin mining is even possible. All that process consumes plenty of energy, and requires a lot of money.
Both Bitcoin and Gold serve as investments to store value, as both assets are hedges against devaluation and inflation.
We have only managed to discuss a few basic similarities between Gold and Bitcoin. As you can see, both assets can be used for the same purpose, i.e. securing your capital and investments for the future. However, there are differences between them and it is worth paying attention to them.
First of all, Gold is tangible in physical form. You can actually buy it and keep it at home, whether it‘s gold jewelry, bars, or coins. Of course, this carries some risk, because physical gold can be stolen, so it is worth storing it in a safe place, for example in a safe.
Bitcoin, on the other hand, only exists in a digital, virtual form. You can’t touch it or see it, except for the graphics on the monitor screen. Thanks to this, there are no problems with storing it. You can have Bitcoin on a special cryptocurrency platform, such as ByBit, Binance, or Bitget, or in a more secure place, i.e. on your own cryptocurrency wallet, and these, in turn, can be divided into:
- Software wallet
- Hardware wallet (more safety, recommend)
If you want to know more about the crypto wallets read my article Crypto Wallets – Keep Your Money Safe.
We should also not forget about the possibility of investing in Gold without the need for physical contact with this metal, for example in the form of an ETF on the stock exchange, but we will talk about this later.
You’ve seen historical charts of both assets, and I’ve shown you that both are increasing in value. However, if we look at the charts in smaller time frames, we can see a clear difference between Bitcoin and Gold. Do you know what is that difference?
Yes exactly! These are price fluctuations! Now look at this chart:
Have you seen the price of Bitcoin drop? From almost $70,000 in November 2021 to approximately $15,000 in November 2022! Almost $55,000 down in one year! Today its price is about $37.000.
Okay, so what does the price of Gold look like? What are the fluctuations? Let’s look at the chart that always tells the truth:
In March last year, the price per ounce of Gold was over $2,060, then in September the price bottomed and we paid over $1,600 per ounce. That’s a round-up difference of $400. The price of Gold began to grow again and on May 4, 2023, it reached its peak, i.e. over $2,070 per ounce. Then the price dropped and on October 6, the cost of an ounce of Gold was exactly $1,810.53. Today (22-11-2023) we see growth again, the price of Gold is currently $2002.02 as I write this article.
Price fluctuations are definitely different in the case of Bitcoin and Gold, and this is of great importance!
Stability of Gold and Bitcoin – Comparison
You have just read about the basic differences between Bitcoin and Gold. Although there are many more, I wanted to focus on the most important ones, especially for the average person who wants to invest and earn money.
Did you see the charts above, what do you think? What is the difference between the assets discussed in this article? What can we learn from these charts? Right now is the best time to make it clear!
Now let’s focus on Bitcoin. If you look closely, you will definitely notice a huge difference in price in just one year! When the price was the highest in the history of this cryptocurrency, a downward trend began that lasted for exactly a year! Of course, there were small fluctuations during this time, it would be strange if we did not observe these small fluctuations, but these are practically insignificant price jumps.
If we have noticed such a large price jump during the year, it proves that Bitcoin is a less stable asset. This has its advantages and disadvantages. An experienced investor can use this opportunity to earn really good money. The problem arises when novice investors, often under the influence of emotions, make bad decisions, thinking that they are doing the right thing. The market is then merciless and quickly brings such people down to ground.
It is completely different in the case of Gold. On the chart we can see more frequent price fluctuations, but the difference between the price peak and the price trough is incomparably lower. Thanks to this, we have many more opportunities to enter the market or buy physical gold.
The price of Gold is much more stable than Bitcoin, so even a beginner can follow the chart and make a purchase when the price drops. When the value of Gold increases, the investor will earn money depending on how much he invested. As I mentioned in another article, it is best to allocate at least $1000 for investments.
Investment? But what kind? Choose the right one!
We discussed the basic differences and similarities between Bitcoin and Gold. Both assets are really worth your attention, both protect your capital against inflation. Which option is better then? Well, that depends. An individual approach to each person is needed here, because each of us is at a different stage, each of us has a different strategy, knowledge and expectations. This is, among other things, why you need to make, as always… a thorough analysis! Just like that!
We distinguish two types of investments in Bitcoin and Gold:
- Purchase of an asset
- ETF transaction
In the first case it is simple. You buy a specific amount of Bitcoin or Gold, at the most favorable price. You are then the owner of the asset. If it’s Bitcoin then you have the amount of BTC you just bought in your cryptocurrency wallet, whether it’s on a trading platform or an external wallet, the choice is yours. Likewise with gold. You then physically have the amount of gold you purchased, regardless of the form in which you bought it.
This form of investment significantly reduces the risk. Why? I’m going to explain it now. First of all, it is a long-term investment. It would make no sense to buy Gold to sell it in a few days. This is not the purpose of such an investment! Imagine you buy Bitcoin or Gold for $1000. No matter which asset you chose, you now OWN it. Ok, let’s assume that after a year the price drops and your purchase is worth not $1000 but $800. And this is where the problem begins, because most people panic and sell their assets, incurring losses! And this is a huge mistake!
As an asset owner, you’ll never go to zero as long as you still own the Gold or BTC you purchased.
If the price of the purchased asset drops, just wait until it increases again. Price declines always occur, they may be a correction or a downward trend, but sooner or later there will be price increases, especially when the world is struggling with inflation and the supply of both Gold and Bitcoin is constantly decreasing. Remember that!
Now let’s move on to discussing the second type of investment in Gold and Bitcoin. ETF transactions are typical trading on the stock exchange and do not involve the actual purchase of a given asset, but rather price speculation. In this case, financial leverage is often used, thanks to which you can turn over an amount several, dozen or even several hundred times larger than your investment contribution. This means you can significantly increase your income, but be careful! You can also suffer losses very quickly! Therefore, I suggest using no more than 5x leverage.
Another difference is that if you trade, you can completely lose your capital. No, you can’t have debts, as some people say, but the loss of capital, hard-saved money really hurts, I experienced this myself once.
What definitely speaks in favor of this form of investment is the ability to invest in both increases and decreases. The former are called BUY or LONG, and the latter are SELL or SHORT. Let’s say the price of Gold is high and you think it’s going to fall soon. In this situation, you can start a sales transaction, the more the price drops, the more you earn.
Trading ETF contracts is more of a form of short or medium-term investment. Yes, you can also invest for the long term, and you should, but you need a very high financial contribution that will protect your transactions from closing in case the price goes in a different direction than you expect.
It is worth mentioning Spreads here. The spread is the difference between the market price and the opening price of the trade, the smaller the spread the better for you. Depending on the broker you use, the spread may vary. It is worth using, for example, the IC Markets broker. This is an Australian company that I have personally used for over 5 years, it has some of the lowest spreads.
Although Bitcoin was created to protect capital against devaluation and inflation, just like gold, there are some differences between them. Bitcoin is much less stable than Gold, so it is intended for more experienced investors. However, anyone, even a beginner, can start investing in this most popular precious metal.
First of all, Bitcoin is relatively new, discovered in 2008, while Gold has been known since ancient times. That is why the latter asset inspires greater trust among people. Nevertheless, investing in Bitcoin can bring really large profits.
We can use both as a means of payment. Both assets are limited, Bitcoin can be mined at a maximum of 21 million units, and the so-called Bitcoin Halving takes place every 4 years. However, we do not know how much gold is left in the ground, but the fact is that there is less and less of it, and this affects the increase in value.
I would also like to mention that you can try to make money on Bitcoin without investing anything. Using the Stormgain platform, which acts as both a cloudminer and a trading platform. You can get small amounts of BTC and start trading. This is a great way to take your first steps and gain valuable experience, especially since, to make it easier, Stormgain sends signals when it is worth buying or selling.
When it comes to Gold, you can buy a small amount at first, but be careful not to fall victim to fraud. Buy only from proven and trusted brokers or state mints. This purchase is a really great investment for the future!
If you need basic knowledge on how to trade ETF contracts, be sure to check out my tutorial How To Trade Online Stocks? Step By Step. You will learn how to take your first steps. If you have any questions, send me wisdom and I will do my best to help you.