Physical vs. Digital Gold: Which Reigns Supreme in 2024?

The Bitcoin supply is absolutely finite. But gold is only relatively scarce.

That’s because Bitcoin (aka digital gold) is capped at 21 million BTC, and nothing can ever change that. Plus, already-lost Bitcoin makes it even more scarce. The early days of the currency are full of stories about people who lost their private keys—and once that BTC is gone, it’s gone forever. That means the maximum supply of Bitcoin is actually, in effect, even less than 21 million.

That’s a big reason why Bitcoin is often referred to as digital gold. It uses 21st-century technology to emulate the valuable properties that physical gold provided in the past.

While both kinds of gold can serve as a store of value in compelling ways, there are also significant differences between the two.

In this piece, we’ll compare their fundamental differences regarding supply, value, security, and more.

By the end, you’ll realize that, despite the similarities between Bitcoin and physical gold, Bitcoin is superior because of its truly finite supply. There will never be more than 21 million Bitcoin making it the superior asset.

(NOTE: For clarity, the rest of this piece will refer to physical gold as simply “gold” and digital gold as “Bitcoin.”)

Differences of Gold and Bitcoin

One of the key reasons why Bitcoin is often dubbed digital gold is its ability to leverage 21st-century technology to replicate the valuable properties of physical gold. This innovative approach sets Bitcoin apart, impressing with its ability to adapt and evolve in the digital age.

Gold isn’t all it’s cracked up to be, either. While many presume gold to be finite, in reality, gold mining activities can change the supply. For example, gold discovered in Uganda in 2022 nearly equaled the total amount of gold existing above ground at the time.

Quick comparison

Before we dive into an in-depth comparison, here’s a chart that shows how gold and Bitcoin stack up against each other…

While both Bitcoin and gold have their unique appeal, there are distinct reasons why Bitcoin has gained popularity as a store of value.

To delve deeper into these differences, let’s compare and contrast their unique features. If you prefer a video overview, check out Hard Money | Bitcoin vs. Gold below with Natalie Brunell.

Value

While Bitcoin has certainly seen its share of volatility (especially in its early years), its value has generally trended upward over time as adoption increases. On average, it has returned 671% annually (as of February 2024) since its inception. 

The reason for that growth: Proponents believe digital gold provides an even better store of value and inflation hedge than physical gold.

Gold has proven a fairly reliable investment over time and is often considered a safe haven during market volatility. Peter Burns writes in Money,

• “Gold is not an asset that generates income, but it can function as a store of value when its price appreciates over time. The worldwide average annual return of gold between 1971 (the year the U.S. stopped linking the price of gold to the dollar) and 2022 was 7.78%. 

Still, there can be considerable fluctuations from year to year. For example, the annual return of gold in 2022 was only 0.4%.”

Meanwhile, the value of Bitcoin shot up during this period.

Factors that impact the value of Bitcoin

1. Supply and Demand Dynamics

Like any other asset, Bitcoin’s value is influenced by the age-old forces of supply and demand. By design, there’s always a limited supply, so its value goes up when demand increases. Worth noting: Price and demand do not impact Bitcoin’s programmatic supply schedule; that remains constant regardless of market dynamics. 

2. Market Sentiment and Investor Confidence

The value of digital gold goes up in response to positive news, adoption by major companies, and regulatory endorsements that boost investor confidence. Conversely, negative news, security breaches, or regulatory crackdowns can dampen Bitcoin’s price.

3. Economic and Geopolitical Factors

Inflation rates, economic stability, political uncertainty, or currency fluctuations can all influence the perceived value of Bitcoin as a store of value or hedge against traditional financial systems.

4. Scarcity and Halving Events

Bitcoin has a finite supply with a total cap of 21 million coins. Periodic events called “halvings” occur approximately every four years, reducing the rate at which new Bitcoin is created. Historically, this has preceded Bitcoin bull markets.

5. Global Adoption and Mainstream Acceptance

As Bitcoin gains broader adoption, its value has the potential to increase. Factors such as merchant acceptance, institutional investment, and regulatory frameworks can all contribute to the perception of digital gold as trustworthy and valuable.

Factors that impact the value of gold

1. Global Supply and Demand

Like Bitcoin, the price of gold is influenced by supply and demand in the global market. When demand exceeds supply, the price tends to rise. One key difference here is that this can result in increased mining/production of gold. Bitcoin has a fixed limit, though.

2. Investor Sentiment and Safe-Haven Demand

Gold is often considered a safe-haven investment during economic uncertainty or market volatility. This rise (or fall) in desire can impact its value.

3. Interest Rates and Inflation

When interest rates are low (or inflation is high), investors may turn to gold as an alternative investment, potentially driving its value.

4. Currency Exchange Rates

Changes in currency exchange rates can affect the price of gold. As the value of a currency declines compared to other global currencies, the cost of gold in that currency may rise.

5. Central Bank Actions

Central banks often hold large quantities of gold in reserve. Central banks buying or selling gold reserves can impact the supply and demand dynamics in the market.

6. Jewelry and Industrial Demand

The demand for gold in jewelry and other industries also can impact its value.

Supply

Having a predictable supply prevents inflation and ensures an asset retains its value. 

• Bitcoin has a hard-capped, limited supply—only 21 million units will ever exist since this supply cap is hard-coded into its core protocol rules. The limited supply is key to Bitcoin’s long-term value.  

• Gold also scarce because it is hard to find and is usually available only in low concentrations since one must process a large amount of rock to obtain it. The rarity of gold, the fact that it’s non-renewable, and the challenges in obtaining it are largely why gold is valuable.

Nonetheless, there are fluctuations in the amount of gold available at any given time. Investment researcher Nathan Lewis writes, “

• In terms of availability, [gold] is very plentiful. We actually have twice as much above-ground gold today as when the world left the gold standard in 1971. We have seven times more than in 1910.”

Some bad news for gold’s ability to serve as a store of value: In June 2022, authorities in Uganda revealed a significant find of around 31 million metric tons of gold ore within the nation (320,158 metric tons of purified gold). That amount’s approximate valuation was $12 trillion.

This single discovery represented more than the entire amount of above-ground gold accounted for in total supply. As this gold continues to be recovered, it will significantly dilute the scarcity properties of physical gold. 

Divisibility

High divisibility allows an asset to be split into smaller units, making it easy to transact regardless of the amount. 

Bitcoin is much more divisible than most currencies. One Bitcoin can be divided into up to eight decimal places, with constituent units called satoshis. That helps keep costs in check.

Divide gold into smaller increments, and you will pay a premium. One-hundredth of an ounce of gold will cost around $35 online, which is, in effect, a $3,500 per ounce price of gold—that’s a 75% markup compared to the actual price of gold at that time!

Security

Is Bitcoin secure? 

Answer: 

• “Bitcoin makes it possible to transfer value anywhere in a very easy way, and it allows you to be in control of your money. Such great features also come with great security concerns. At the same time, Bitcoin can provide very high levels of security if used correctly. Always remember that it is your responsibility to adopt good practices in order to protect your money.”

Of course, the same issues exist with gold. You have to make sure you’re storing it somewhere safe and trustworthy. Also, verifying the authenticity and purity of gold is tricky.

Counterfeiting is a lurking danger. Determining if your gold is the real deal can be challenging unless you have special equipment and expertise.

Programmable

Bitcoin implements programmable transactions and smart contract functionality via things like its built-in scripting language (Script), the Lightning Network, Discreet Log Contracts, and sidechains. 

Gold offers nothing of the sort.

Portability 

With Bitcoin, your money is always available. You don’t have to ship gold bars somewhere. That means it is ready to be used wherever/whenever. 

Gold is heavy and a pain to lug around…just ask pirates.

/h4Liquidity 

Bitcoin can be converted into cash quickly through cryptocurrency exchanges and Bitcoin ATMs, typically 24/7 and within minutes (though some exchanges may take longer).

ATMs offer instant cash but broader spreads.

Peer-to-peer transactions benefit from Bitcoin’s easy verifiability, too.

As for fees, converting Bitcoin to cash may incur transaction fees from exchanges or platforms and potential capital gains taxes based on timing.

Converting gold to cash can be quite time-consuming. The process involves finding a reputable dealer or pawnshop and verifying the gold’s authenticity and purity, which can take anywhere from days to weeks.

Then, you need to negotiate a fair price based on market demand and local conditions. Selling physical gold may also involve dealer margins and fees to confirm authenticity.

Accessibility

Purchasing Bitcoin has become increasingly easy thanks to Bitcoin exchanges and user-friendly platforms. Registering an account on reputable exchanges (like Swan) is a straightforward process.

You can fund your account through ACH or wire transfers. With a few clicks, you can transact. Some exchanges even offer mobile apps so you can purchase and manage Bitcoin on the go.

Compare that to gold, which you can acquire at brick-and-mortar coin shops and purchase gold bars or coins in person. There are also reputable online dealers where you can browse the inventory, select your gold product, and deliver it to your doorstep.

Online auctions or marketplaces also provide opportunities to buy physical gold. There, prices can vary depending on demand and bidding competition.

However, purchasing gold means considering a few extra factors…

Authenticity

• Verifying the authenticity of physical gold can be crucial since counterfeit gold exists in the market. Stick to reputable sellers or dealers with a solid track record.

Storage and Security

• Physical gold requires storage arrangements to ensure its safety. Buyers should consider a secure home safe, a safety deposit box, or third-party storage facilities (each with its own associated costs).

Additional Expenses

• When buying physical gold, you may need to consider additional expenses, such as shipping or insurance fees. These can also add up and impact the overall cost.

Liquidation

• If you decide to sell your gold in the future, the process might involve finding a buyer, either directly or through a dealer, and arranging for the transfer of ownership. This can be much more time-consuming than the instant liquidity of Bitcoin.

Environmental Impact of Gold vs. Bitcoin

Similarities Between Gold and Bitcoin

Of course, we should mention the many things Bitcoin and gold have in common.

• They are both highly fungible (i.e., any unit of the asset can be exchanged with another of the same type without losing value).

• Also, they are non-consumable, meaning they are assets that do not degrade through use. Both preserve their value and utility over time, and neither loses anything from repeated use.

• Both are very durable. Durability signifies an asset’s ability to resist deterioration over time, ensuring it retains value and utility. That’s a key attribute for any store of value.

• Sovereign issuance and government backing can impact an asset’s credibility, stability, and acceptance. While fiat currency excels in this regard, Bitcoin and gold lag. 

• Decentralization (i.e., removing third parties and centralized institutions from financial transactions) is a core principle of Bitcoin. However, it’s also inherent in gold. Neither is controlled by any central authority.

Can Bitcoin flip gold’s market cap this cycle?

Bitcoin OG Adam Back thinks so.

In the video below, we pit the two hardest monies against one another and explore how gold’s historic price moves following its ETF approval could foreshadow what will come in the next few years for Bitcoin.

Making the Choice

Consider your personal preferences and risk tolerance when pondering the choice between Bitcoin and gold. If you love technology and are comfortable with the digital realm, Bitcoin may be an ideal fit. Gold may be a better choice if you desire a physical currency and prefer tangibility. 

Diversification is always an option, too. Consider allocating a portion of your wealth to digital gold, which offers liquidity, ease of transfer, and potential growth. Then, balance that with physical gold to add an extra layer of stability and hedge against economic uncertainties and Bitcoin’s volatility.

Here are some recommendations from experts

Michael Saylor, MicroStrategy founder, says: 

• “Bitcoin is more efficient than gold. It’s more efficient than fiat money. It’s more efficient than storing your money in an Airbnb rental apartment. It’s just the most efficient energy system, and rational people everywhere in the world are looking at it and saying, 'Why wouldn’t I want to store my money in a property that is the apex property of the human race?”

In this clip from the “Saylor Series” by Robert Breedlove on the “What Is Money?” podcast, Michael Saylor talks about why Bitcoin is better than gold!

Jurrien Timmer, the Director of Global Macro at Fidelity, found that allocating just 1% of a traditional portfolio to Bitcoin produced similar effects to a 4% gold allocation. In other words, by including Bitcoin, investors could potentially achieve more with less in their “store of value” portfolio allocations. 

The folks at Cathie Wood’s Ark Invest have found the optimal allocation to Bitcoin to be a whopping 19.4%. Now, that might be a bit much for most investors. Still, when considering the risk-adjusted returns, increasing one’s allocation is worth considering.

According to these experts, Bitcoin is gaining traction as a long-term investment option that could outshine gold. Still, do your own research, examine your risk tolerance, and invest accordingly.

Once you have, buy real Bitcoin with Swan today!

For more information, please visit swan.com.