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Bitcoin vs Gold

by | 7 May 2020

Bitcoin and the precious metal gold share some similarities. Gold is physically limited, because the worldwide deposits in gold mines are considered finite. This means that producers cannot produce an unlimited number of gold coins.

The number of Bitcoin coins is also limited. Probably in 2140 the last Bitcoin will be “mined” – then there will be about 21 million Bitcoins.

In the context of the Corona crisis, which caused global turbulences especially in the financial market, we want to look at which asset – gold or Bitcoin – has performed better in this period.

Gold the safe haven

Gold has clearly been able to maintain its role as a “store of value”, especially in the current times of crisis. The price of gold lost a maximum of just 4 per cent and at the time of writing this text is currently at 1700 US dollars per ounce. At the beginning of the year the price was still at 1517 US dollars. This corresponds to a plus of 12.5%, and this despite the lockdown and the prevailing uncertainty, or perhaps precisely because of it.
If we compare the market capitalisation, then we see that gold’s market capitalisation is around USD 8 trillion. This is around 50 times greater than Bitcoin’s.

Bitcoin in 2020 – the best investment

As in the entire last decade, Bitcoin is again the asset with the largest price gain. However, Bitcoin suffered much more from the sell-off and the uncertainties on the financial market in March than gold. In the initial panic, Bitcoin was sold off heavily, comparable to the stock market. Bitcoin then showed that it can recover much faster from such crises. Starting at 7152 US dollars at the beginning of 2020, the price is currently at over 9000 US dollars. A plus of over 25%.

Bitcoin currently fulfills two main functions: The digital currency serves as a store of value on the one hand, and as a value transfer function on the other. This is because Bitcoin can be transferred quickly and easily across national borders.

Bitcoin and gold in the forecast model

The stock-to-flow ratio is the figure we get when we divide the total stock by the annual production (flow). It indicates how many years are required at the current production rate to produce the current stock level.

The next Bitcoin Halving is due in just 5 days. This halves the reward for miners to 6.25 Bitcoin per block. By halving the flow of new Bitcoin, the stock-to-flow ratio doubles. From May 2020, Bitcoin will therefore have a value of 54 (years), just behind gold (62 years) and well ahead of silver (33 years).
Let us now compare the dynamic stock-to-flow ratio of Bitcoin with that of gold, whose stock-to-flow of 62 is unlikely to increase. At the next but one halving in 2024, Bitcoin will reach an unprecedented value of over 100.

After this positively mastered “stress test” this year, Bitcoin can be a serious hedge against hyperinflation, persistent low interest rates and who knows, maybe even against a global economic crisis.
Stay tuned!