Gold is and always has been seen as a safe-haven investment asset.
Until 1944, global economies were inherently linked to the amount of gold they had in reserves, and currencies such as the US Dollar and British Pound (GBP) were tied to gold.
All of that changed in 1944 when the U.S. started planning for a post-War world.
Known as The Bretton Woods System, drafted at the Bretton Woods Conference in 1944, the Dollar was fixed at a rate of US$35 per ounce. Other currencies, such as the Pound—which the U.S. was positioning itself to replace as the leading global currency—had fixed, but adjustable exchange rates to the Dollar.
Replacing the traditional Gold Standard liberated gold as an investment asset.
Bretton Woods paved the way for The Marshall Plan in 1948, also known as the European Recovery Program, whereby America injected over $15 billion into European economies to stimulate post-War growth. One benefit America gained was the Dollar taking over as the default currency in areas where the Pound previously had that status, particularly in the Caribbean, Asia Pacific, and parts of Africa.
Replacing the traditional Gold Standard also liberated gold as an investment asset, and since then it’s become a staple for investors around the world. Decades of market data show that whenever the global economy struggles investors flock to gold. Naturally, the price of gold increases. Investors with gold in their portfolios receive healthy long-term returns.
Now let’s compare this to Bitcoin and other cryptocurrencies. How do they stack up? Do investors trust Bitcoin as much? And have they started turning to it for stable, long-term returns, especially when the economy is struggling? Ultimately, which is the better investment, Bitcoin or Gold?
Let’s start by looking at the current trading values of both. Bitcoin is currently trading at $48,264, down from a previous record-breaking high of $67,582 in November 2021. It reached $63,500 in April 2021. For a currency that was launched in 2008, Bitcoin demonstrates a positive ability to increase in value, making it increasingly popular for investors.
On the other hand, Gold is currently trading around $1,798, according to the latest market data.
Does that make Gold less valuable than Bitcoin?
No, not necessarily. Gold has been an asset and investment vehicle for centuries. Gold has shaped the fortune of countries and empires. Gold has longevity, staying power, and is trusted as a way to hedge against market and currency fluctuations in difficult times.
However, from the perspective of which is the best at generating long-term returns, Bitcoin shows a lot of promise. Just take a look at these charts from Willy Woo, a leading Bitcoin on-chain analyst.
Both the chart above and the table below show that if you’d invested $1.00 in gold and $1.00 in Bitcoin, the returns on Bitcoin would be significantly higher over the same timescale.
If you invested in Bitcoin 10-years ago, when the price was $3.054, and the price of Gold was $1709, the returns from Gold would be $1.04 for every $1.00 invested. Whereas, the returns from Bitcoin would be $15,473 for every $1.00 invested.
Pretty impressive, right? On this basis, could Bitcoin ever replace Gold for investors?
According to two of the world’s leading gold experts, speaking to CNBC, this isn’t likely. A billionaire investor, Ray Dalio, who sees Bitcoin as a digital version of gold, doesn’t expect Bitcoin to replace Gold in any meaningful way.
"Allocating up to 2% of your portfolio to Bitcoin is reasonable" - Ray Dalio.
Ray Dalio is the founder of Bridgewater Associates, the world’s largest hedge fund. Bridgewater recently invested $400 million in Gold. Despite the fact that Dalio has always been bullish about Bitcoin, he’s now invested a small amount in Bitcoin, as a way of diversifying his personal and client portfolio investments.
For Dalio, he sees Bitcoin as a diversification investment asset: “I just think of it as diversification. By and large, I don’t really know whether bitcoin is going to go up or down. I could argue both sides of that.”, he told CNBC.
Not according to George Milling-Stanley, chief gold strategist at State Street’s SPDR ETFs.
Milling-Stanley said the following to CNBC’s “ETF Edge”: “I think it is quite possible for these two assets to coexist quite happily in the market because they do completely different jobs.”
“Gold is a very good preserver of purchasing power during periods of sustained high inflation, by which I mean many months with inflation at over 5% a year. In those kinds of periods, which we last saw sustained in the 1970s, then gold gave annual capital appreciation equivalent to about 16% a year or a real return of around 11%,” he said.
Several of the world’s largest ETFs, backed by Gold, are showing reduced returns, despite continued global uncertainty. The SPDR Gold Trust (GLD) is down 4.5% in 2021, entering its 17th year on investment markets. The Granite Shares Gold Trust (BAR), another gold-backed ETF, is also down 4% in 2021.
Bitcoin, on the other hand, is up considerably. For short and long-term gains, which makes it more attractive for investors. However, investors with enough assets and the ability to handle risk should be putting money into both. Gold and Bitcoin serve different purposes, so if you want a diversified, more secure portfolio, then Gold can act as a safe-haven asset and Bitcoin can generate out-sized and impressive returns.