Wednesday, February 21

Bitcoin vs Gold: Which Offers Better Inflation Protection?


As inflation nears record highs, investors are looking for ways to mitigate these effects in their portfolios. Gold has always been one of the great alternatives, however, the novelty, cryptocurrencies and specifically bitcoin, has gained great prominence. Which is better?

The concept from which we start is that of inflation coverage, that is, a type of investment that compensates for something else and that can resolve that rise in inflation.

Now, when comparing bitcoin and gold as hedges against inflation, experts point out a series of dimensions on which to compare them: its history, its effectiveness, its ease of access and other sources of demand for the asset itself.

In terms of their history as inflation hedges, there is no doubt that gold has a strong track record, while bitcoin barely has more than a decade of existence to justify itself.

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The lack of longevity raises serious questions about bitcoin’s ability to be an effective hedge against inflation. In the meantime, gold has long demonstrated its ability to act as a hedgesay many experts.

So much bitcoin like gold are relatively easy to acquire and dispose of, especially since there are ready markets for both. However, gold has an advantage because there are more established ways to trade it.

Gold can be relatively easier to invest in, given the wide range of ways to invest, including buying actual physical gold, buying ETFs that own physical gold or gold companies, as well as futures trading. Although it is true that for those looking to buy physical gold require more complex storage, shipping and security logistics.

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Those looking to use bitcoin or gold as a hedge against inflation should also understand other sources of demand that can support the prices of these assets. Gold has many uses, including industrial and electronic applications, jewelry, medical applications, and of course it is often purchased by central banks as a store of value.

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Instead, bitcoin’s utility rests entirely on its ability to be exchanged for other things, including traditional currency. So, if bitcoin can’t be used to buy things or if people can’t trade it with others that they value bitcoin in this way, it has no value.

Knowing all this, it does not mean that bitcoin cannot become a hedge against inflation, but that there is no demonstration of that potential so far. And it is that even for the experts it seems that not even using Bitcoin as a hedge against a volatile stock market seems useful.

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