Gold vs Bitcoin

Last week, legendary investor Paul Tudor Jones was asked on CNBC about his thoughts on bitcoin – in which he obviously replied that he was long.

But what caught our interest wasn’t his comments on bitcoin, but rather how he lumped in together his thoughts on gold.

Here’s what he said about the “barbarous relics:”

So it got us thinking… How should we be looking at a portfolio of gold vs bitcoin?

It seems like gold bugs hate bitcoin and bitcoin bulls hate gold, but from an agnostic perspective, which is best?

Gold bugs will point to history – stating that while gold has been around for thousands of years, bitcoin has been around for a mere instant of time. Bitcoin bulls, on the other hand, point to the divisibility and portability of the digital currency as a main driver.

A chart from Fidelity Digital Assets illustrates the two sides well.

What’s obvious is both are better than fiat. But let’s look at a couple other metrics…

Size of the Markets

As of today, the market capitalization of all the physical gold above ground is 23x greater than that of bitcoin.

To put this into perspective, last week’s 3.5% gold price jump, due to the conflict in the Middle East, added ~$444 billion to gold’s market cap – more than 85% of bitcoin’s entire market cap.

For years, bitcoin bulls have been stating that if bitcoin is truly a better gold then it should have a comparable market cap. At today’s gold:bitcoin ratio that would give bitcoin a price of more than $650k per token (assuming no upward price movement in gold).

Volatility

One of the main critiques from gold bugs towards bitcoin is that it just has too much volatility. And while that’s true, the reality is that the realized and implied volatility has been on a steady downwards turn.

Now, it may still be too high, but it is moving in the right direction.

ETFs

We don’t need to get into our thoughts around how powerful an ETF could be for the bitcoin market (see story above, or here), but it is worth noting what happened to the price of gold when an ETF was first approved in 2004.

Over the next 10 years, the price of gold rose 4x. Could BTC do the same?

Scarcity

The thing about gold is it isn’t really useful as an investment, rather it is useful to keep purchasing power. That’s because there is only so much gold in the Earth.

Similarly, Bitcoin is designed to match increases in computer power through “halvings”, leading to more scarcity.

Right now, bitcoin and gold have roughly the same inflation rate of 1.8%. But very soon, after bitcoin’s next halving in 2024, the inflation rate will be cut in half.

War

Wars are inflationary. This is primarily due to two reasons:

1. The government prints money

2. Raw materials go into making things that support the war (bombs, bullets, etc) that are unable to be replenished at the same rate of use.

Now you might be saying though, “well I'll just hold stocks.” The only problem though is that stocks perform poorly during war due to uncertainty. For example, in WWII, stocks in the West did not rally until it was obvious which side was going to be victorious. Furthermore, Germany’s stock market fell more than 80% at the end of the war.

Commodities, like gold though, do very well. Will bitcoin do the same? We just don’t know.

As we pointed out a few weeks ago:

Although a recession is looking more and more likely, the two major ongoing conflicts lead to an even bigger question: how would bitcoin perform in war? Will it rise like gold and other commodities?

How to Invest?

Whether it’s the demise of fiat currencies, or from war, or recession, or [enter stupid government decision here], we highly suggest hedging your portfolio.

And while there will be major debates on the best way to do so, here is the amazing thing… you don’t actually have to choose one or the other. You can have both.