Bitcoin has managed to lose over 57% of its value since its all-time high in November 2021 at $64,000, as its price in October 2023 currently hovers around the $28,000 mark.
However, as inflation levels continue to surge in the United States, analysts are speculating whether the Federal Reserve will turn to printing more money. Doing so could help boost BTC’s price back up to its former height.
But could a day come when bitcoin rivals gold as a store of value?
The Bitcoin Evolution
Anyone familiar with bitcoin’s history knows that the asset’s design was characterized by a fixed maximum supply, which currently stands at 21 million coins. In contrast to other cryptocurrencies, which do not have a capped maximum supply, BTC’s current feature offers resistance against inflationary pressures caused by excessive mining (or printing, if we are referring to fiat currency).
Recently, Blackrock CEO Larry Fink has even brought back the notion of cryptocurrencies having the role of ‘digitalized gold’, noting in an interview with Fox Business in July 2023 that “bitcoin is an international asset” and individuals could invest in BTC the same way they could invest in gold “as a hedge against the onerous problems of any country”.
This was perceived as a strong statement in the community, especially since Fink had accused BTC of being a great asset in driving money laundering back in 2017.
“Bitcoin is well on its way to becoming a global digital store of value, particularly in countries outside of the major currencies, but with annual volatility still about three times that of gold, the benchmark crypto has a long way to go,” Mike McGlone, the Senior Commodity Strategist at Bloomberg Intelligence told Technopedia.
David Waugh, the lead analyst at Coinbits, added that BTC, like gold, serves as a great store of value with an additional technological advancement that caters to the constantly evolving digital age.
“Despite its price volatility, Bitcoin’s credibility remains intact as it has been the best-performing asset of the past decade, with a current 4-year compound annual growth rate of 33%. Gold cannot match that.”
Moreover, according to Waugh, BTC is scarcer and censorship-resistant, which makes it a promising long-term store of value.
Gold As a Store of Value
Gold has been long viewed as a premier store of value, boosted by its scarcity, which ensures a limited and finite supply, similar to BTC.
Unlike fiat currencies, gold does not face the risk of devaluation due to excessive printing, making it a reliable hedge against inflation and economic uncertainty, and investors have been turning to gold during times of financial instability.
According to Bloomberg Intelligence’s McGlone, gold’s store of value has remained solid over the years as central banks have been buying the precious metal near historic highs.
“The main headwinds for gold have been rapidly rising interest rates, led by the US, high real yields, and the resilient stock market – plenty of competition for gold,” he added.
Phillip Lord, the president of Oobit, added that gold has been in a $200 price range for the last ten years, making it a great asset that offers utility and yield.
Coinbit’s Waugh added:
“Gold has a long history as a haven and a form of currency that many civilizations worldwide have turned to. Its enduring popularity is due to its durability, scarcity, and divisibility. However, in today’s digital era, where the ability to transfer value over the internet is critical, Bitcoin wins.”
So, could BTC ever replace gold?
Could Bitcoin Rival Gold?
Waugh believes that BTC’s technological advancements have empowered it with superior attributes compared to gold. Such improvements include improved divisibility, portability, durability, verifiability, and scarcity, positioning the digital token as a more efficient and effective store of value.
“Based on the technological advancements bitcoin offers over gold, such as its improved divisibility, portability, durability, verifiability, and scarcity, bitcoin will surpass gold as a preferred store of value as it marches on to become the world’s global reserve asset.”
And while it may be too early to speculate whether BTC could outperform gold in terms of hedging against inflation, Bloomberg Intelligence’s McGlone noted that this has already happened for melting currencies, where BTC, like gold, has helped alleviate debasing tendencies.
McGlone further explained:
“Bitcoin came of existence during a historic period of zero interest rates and the crypto outperformed the metal as it matured into the mainstream. Bitcoin has generally underperformed gold since the Fed started hiking rates. My base case is for a recession reciprocal of the historic pump in liquidity that’s still dumping, which means risk assets typically decline and Bitcoin annual volatility at about three times the S&P 500 and gold, is more likely to drop in price. I am on the watch for signs of Bitcoin divergent strength vs. the stock market and this year, notably since 1H, the crypto risk-adjusted is underperforming.”
Waugh added that BTC tends to outperform gold in scenarios where digital transactions dominate, and censorship resistance becomes paramount.
Crypto vs Gold: the Federal Reserve and Borderless Transactions
The Federal Reserve has been targeting the cryptocurrency industry for quite some time. While McGlone believes that the Fed “may be done tightening”, the aftermath of all regulations is still in its early stages.
“Bloomberg Economics expects a US recession to begin by about year end and the last two recessions saw about 50% drawdowns in the S&P 500, which if plays out like a typical economic contraction, I expect Bitcoin will be more at risk to the stock market declining in than gold will.”
However, because BTC’s biggest nature makes it borderless, allowing for permissionless transactions, its influence can be significantly observed in relevant geopolitical contexts where capital controls, currency devaluation, or transaction censorship are major concerns.
“While gold can also serve as a store of value in these contexts, its physical nature makes it harder to transport or transact discreetly. Bitcoin offers portability and censorship resistance that gold cannot match, especially for cross-border transactions or digital trade.”
While many analysts remain bullish on the sentient that bitcoin could rival gold, uncertainty surrounding crypto markets still allows room for more speculation.
McGlone concluded that BTC is one of the most fluid global 24/7 traded vehicles in history, which makes the asset a leading indicator of risk on/off liquidity.
The strategist added that central banks will someday hold bitcoin, just like Saifedean Ammous pointed out in his book Bitcoin Standard.