Bitcoin and Gold Slaying Stocks: Why Not Own Both?

The Bitcoin vs. gold battle rages on as the two are best-performing assets of 2020.

The price of gold is up 26% this year, while Bitcoin has soared 87% — both dwarfing the 5.27% return of the S&P 500.

Driving that performance is their promise as safe-haven assets. 

The coronavirus pandemic sent shockwaves across the country earlier this year, forcing lawmakers to inject trillions of dollars into the economy.

The uncertainty of the pandemic fallout and cost to keep the economy afloat has led many investors to turn to gold and the digital gold — Bitcoin. 

The government response to the coronavirus pandemic via stimulus packages has pushed U.S. debt to levels not seen since World War II. This is good news for gold, which does well with market uncertainty and a weakening dollar. 

The U.S. will join a handful of countries with government debt-to-gross domestic product (GDP) above 100%. The likes of Greece and Japan have such high debt levels.

Such excessive debt levels have not worked out so well for these countries. However, the value of Bitcoin and gold is not dependent on a central bank or federal government. 

Winner of the Bitcoin vs. gold battle

The pandemic drove investors to safe havens. Investors have historically hedged market volatility with gold. But it appears bitcoin has found a place among investors looking to diversify beyond the stock market, and for good reason.

Bitcoin’s greatest advantage over gold is that it does have more utility in the current digital age. However, with that comes one of its biggest disadvantages — volatility.

The cryptocurrency also is heavily reliant on the internet and susceptible to regulation. Meanwhile, gold is a physical asset (i.e. unhackable) with a long track record and little chance of disruption. 

What it boils down to is this: Gold is “safer” if you value less volatility and staying power. No other metal is going to replace gold as the go-to safe-haven commodity. Gold has been around for thousands of years and enjoys little or no competition from other commodities. 

However, Bitcoin battles many other cryptocurrencies for dominance in the digital world, such as Ethereum and Tether. While a “better” digital asset could come along with greater usability or utility, it’s highly unlikely that anyone is going to find a new metal that takes the place of gold. 

At the end of the day, gold is still the better store of value if you’re looking to hedge market volatility. Bitcoin, instead, buys into the volatility, trading much like a tech stock. 

No longer competitors

Unlike the U.S. dollar, which is susceptible to inflationary pressures, Bitcoin and gold are not. There’s no possibility of overproduction.

Now, there is a slight difference between the supply of Bitcoin and gold. There will only be 21 million bitcoin. Currently, there is 18.5 million bitcoin in circulation. It is still unknown how much gold is in the ground or in space, should cost-effective asteroid mining arrive.

One of the more interesting aspects, however, goes back to the initial assessment — Bitcoin and gold are two of the best-performing assets of 2020. If Bitcoin does well, so does gold — and vice versa.

Still, at the end of the day, it seems more likely that enhanced computing will come along and compete with Bitcoin versus the advent of asteroid mining increasing the gold supply.  

The better argument is that gold is a store of value and its price will not grow exponentially over the long-term, while Bitcoin is akin to new technology with strong growth prospects and some key risks. There’s room for each in a portfolio. 

Why not both? 

Now, when we get down to the brass tacks — the basic facts — gold should still probably have a greater allocation in a portfolio compared to bitcoin.

Not only has gold withstood the test of time, but there are also more ways to invest in it. The SPDR Gold Shares (GLD) is an exchange-traded fund (ETF) that tracks the price of gold and has long been one of the top two ETFs in terms of total assets. 

Beyond that, there are other ETFs, gold mining stocks, and royalty companies that offer exposure to the yellow metal. The VanEck Vectors Gold Miners ETF (GDX) is an ETF that invests in gold mining companies. 

For investors looking to use the stock market to invest in Bitcoin, they have limited options. The Grayscale Bitcoin Trust (GBTC) is the only pure-play on bitcoin — with a 0.96 correlation to the price of Bitcoin.