When the markets wobble, there are two kinds of investors: those that duck and run and those that rise and shine. In other words, many people seek safety while others see a chance to prosper.

This is why the debate over gold vs. Bitcoin continues. The gold camp touts safety and stability, while Bitcoin investors and traders look for increased demand and profitability.

Let's look at how Bitcoin stacks up to gold in volatile times.

The Safety Argument

Investors have often turned to gold as a "safe" investment. This old-fashioned preference stems from the days of runs on the bank, where investors expected their cash to be on hand in the bank building. With gold, you would have your investment even if the bank ran out of cash or the dollar became worthless.

It's an odd sentiment, given the fact that gold fluctuates in price like any other investment. Very few investors hold actual gold, so they essentially buy shares in a company that invests in gold. If gold drops in value, so does the investment.

Those that physically hold gold are the real hardcore gold fans. Even a small amount weighs a lot, and hauling it around to make a transaction is not realistic. So gold holders must store it, and there is a cost for that. Plus, they must trust a bank or whoever has the vault to stay in business. If banks and gold storage sites started shutting down, you might have no more unhindered access to your gold than you would your cash.

Bitcoin is not stored. The blockchain ledger showing how many coins you own is readily available at all times. If you decide to sell, you can find a buyer through the exchanges and execute the transaction quickly. In other words, you manage your own safety.

Instead of hoping the value of gold will hang in there or bounce back, you can buy or sell your coins as you see fit as the market rises and falls. You are in charge of the decisions about protecting your investment.

Gold is pretty much a buy-and-hold proposition, whereas Bitcoin allows you to get in and out of the market as conditions warrant.

The Scarcity Argument

Gold buyers have long confused rarity and scarcity. Yes, gold is a rare metal. That is why it is valuable. But that doesn't make it scarce. Something interesting happens when the price of gold goes up: there is suddenly more of it. Miners have an incentive to produce more gold when the price rises, so there is more supply. This can make the price of gold sluggish.

About $200 billion in gold comes on the market each year. With Bitcoin, there's about $6.5 billion available this year. So when the demand for "haven assets" goes up, Bitcoin is poised to rise faster than gold. And Bitcoin supply won't increase with the price the way the gold supply does.

The Chance to Profit

Gold has risen about 44% in value--in five years. In 2020, Bitcoin yielded 27%--in one quarter. And that's twice the yield of gold in the same quarter.

If that trend were to continue, an investor would make more in six months with Bitcoin than the same investor would make in five years with gold. To be sure, there is no guarantee that the trend will continue, but the potential for profits is clear.

You pay for the potential profits with the potential risk, but you can manage that risk by selling Bitcoin when you are ready. Gold is certainly liquid, but in practice, traders don't jump in and out of gold depending on the price, so you are more likely to ride out a dip than sit it out.

Easing In

In volatile times, there is no need to be a fortune-teller. You don't have to predict where the markets will be in the future. Betting on gold for the long term can be a commitment to a single market prediction for years. People tend to buy a lot of gold and make that bet on the market with a significant investment.

On the other hand, you can set up a regular purchase schedule with Bitcoin, easing into the market and watching it as your position increases. This can be especially useful in an event-driven crisis when markets respond to unexpected news. As things settle down, you can evaluate how you have done and decide how to continue investing.

The Bottom Line

Some clichés are common because they are true. The best defense is often a good offense.

And that is the essential choice you have between gold and Bitcoin. Gold will let you stow your investment away, and Bitcoin may let you multiply it.

Is it safer to hide or fight? It's an individual preference, but it is one that can determine your future. At the very least, you should compare the benefits and risks of either approach.

Kevin Johnston

Is Bitcoin a Better Investment Than Gold?