Why is gold a completely different investment than cryptocurrencies?

13 January 2023 г. 5 minutes of reading
Gold and cryptocurrencies are often compared. But gold—what you can store—is very different from intangible digital cryptocurrencies.
  • Demand for gold is more diverse
  • Gold supply is also more diverse
  • Cryptocurrencies have behaved like speculative investments so far
  • Gold has proven itself as a safe-haven investment many times, including in times of high inflation.

In short, cryptocurrencies will not replace gold.

Demand for gold comes from many places

Gold is different from almost any other asset because it is used in different ways. Investors and central banks own gold to make a profit and protect their wealth. Jewelry makes up the bulk of the demand for gold. Gold is also a key component in electronic devices, from cell phones to televisions. (Figure 1).

Since gold has many uses, its price can be more stable than the prices of many other assets. When financial markets are under stress, investors buy gold as a safe haven. When the economy is doing well, consumers buy more gold jewelry and electronics.

Why is gold a completely different investment than cryptocurrencies?

Cryptocurrency demand is less diverse

In our discussion, we refer to bitcoin statistics when talking about cryptocurrencies as they have the largest market capitalization of all cryptocurrencies.

The demand for cryptocurrencies is largely limited to investments, unlike gold, which is bought for many reasons.

Some consumer research suggests that investors are more likely to view cryptocurrencies as a high risk, high return speculative bet compared to gold[1]. (Table 1) Cryptocurrencies can experience large price fluctuations. Bitcoin, for example, has skyrocketed and fallen in price over the past year as speculators piled up or sold off.

Why is gold a completely different investment than cryptocurrencies?

Mining and ownership of gold is diverse

Gold is mined all over the world, and no single continent accounts for more than 30% of world production[2].

Ownership of gold is varied. The US Treasury is the largest known holder of gold, but it owns only 4% of all gold on the surface of the earth. Nearly 50% of this gold reserve is found in jewelry owned worldwide, and more than 20% is owned by investors in the form of gold bars and gold coins[3].

Computing power and cryptocurrency ownership are less common

In 2021, organizations in five countries controlled an average of 80% of the computing power on the Bitcoin network[4]. Bitcoin ownership is also highly concentrated, with just 2% of Bitcoin holders owning 95% of all available Bitcoins[5].

Gold and bitcoin behave differently as investments

Gold tends to come into its own when stock markets are under stress. Bitcoin, however, does not follow this pattern. For example, from November 2021 to May 2022, Bitcoin more than halved in value as the S&P 500 and Nasdaq fell. Gold, on the other hand, held steady[6].

Since cryptocurrencies are much more volatile than gold, our analysis suggests that investors holding cryptocurrencies would benefit from adding gold to their portfolios to reduce overall risk and increase long-term underlying returns.

Retail investment in gold opens up many exciting opportunities to access the gold market. As with any investment, the more you know, the better you will be able to make the right choice. The purpose of this retail gold investor guide is to help you differentiate between providers, understand which products are best for you, and, with that knowledge, trust gold.