Bitcoin vs Gold – Where Is It Better to Invest Your Money?

Gold (XAU) has been a safe-haven asset during economic uncertainty. However, with the rise of cryptocurrencies, Bitcoin (BTC) has emerged as a strong contender for investment portfolios. This article compares Bitcoin and Gold based on technical and fundamental overview to find which investment is best for investors in the coming years.

Evaluating the Correlation Between Gold and Bitcoin

Gold’s Stability vs. Bitcoin’s Digital Innovation

Gold is a tangible asset that can be physically held. It is highly liquid globally and easily bought, sold, or traded. Its long history of regulatory frameworks makes it a stable investment. However, storing gold requires physical security, such as vaults or safes, and involves storage and insurance costs. Miners extract new gold yearly, but the process is becoming more difficult and costly.

Historically, gold has been less volatile than bitcoin and has experienced more gradual price fluctuations. On the other hand, investors store Bitcoin as a digital asset coded on the blockchain and held in digital wallets. It enjoys high liquidity with growing adoption in financial markets. However, regulatory changes or technological issues can affect its liquidity. Bitcoin has a fixed supply of 21 million coins, making it attractive to investors. However, Bitcoin operates in many countries’ regulatory grey areas, raising concerns over potential restrictions.

Correlated Price Movements Between Gold and Bitcoin

In recent years, both investment vehicles have been strong choices among investors, leading to highly correlated price movements. From a technical perspective, this correlation is evident in the weekly chart below. The chart highlights the price action when the gold market broke higher in June 2019. This breakout initiated a strong rally. In contrast, Bitcoin failed to break higher and consolidated within a sideways market. When gold peaked in August 2020, Bitcoin broke out and began its next surge. After Bitcoin’s breakout in August 2020, gold entered a broader sideways consolidation. The next breakout in the gold market occurred in February 2024, which initiated another strong rally. However, Bitcoin failed to break higher and continued consolidating within a range.

This explanation shows that Bitcoin tends to consolidate and prepare for its next move when gold initiates a strong surge. As gold peaks within the $2,750 to $3,000 price range, Bitcoin is breaking higher from a bull flag pattern. Based on this price correlation, if Bitcoin continues to break higher, gold may peak for a few weeks until Bitcoin reaches its peak. These observations demonstrate a direct correlation and suggest that both instruments are valuable investment options.

Assessing the Market Strength of Gold and Bitcoin

Gold’s Surge During Inflation Protection and Geopolitical Uncertainty

Investors often use gold to hedge against inflation because its value typically rises when fiat currencies depreciate. Its stability makes it a reliable store of value. The chart below shows the long-term price movement in the gold market using a line chart. It indicates that the price surge in 2024 has brought the gold market to a critical region. A quarterly break and close above the key $3,000 level could initiate another strong rally. The ongoing geopolitical uncertainty could extend this rally.

Bitcoin’s Growth Potential and Parabolic Breakout

On the other hand, Bitcoin has demonstrated incredible growth since its inception, with substantial returns for early investors. This high reward comes with high risk due to its volatility. Many investors view Bitcoin as a form of “digital gold” because of its fixed supply. Its increasing role as a store of value in the digital world further supports this view.

From a technical perspective, Bitcoin is on the verge of a strong breakout, and its parabolic rally will likely continue. The chart shows that Bitcoin has formed four significant bottoms during its historical price movements. Four peaks have also followed these four bottoms in the Bitcoin market. Each bottom has driven prices to hundreds of percent gains.

The chart below is a logarithmic chart, which smooths out price volatility. It reveals that Bitcoin is approaching a critical level during its fifth attempt at breaking the arc pattern. Furthermore, the price consolidation over the past six months suggests a breakout from this level is imminent. This breakout will likely initiate the next momentum phase in the parabolic rise. This momentum could drive prices to much higher levels. A break above the $72,000 level is expected to trigger the surge.

Risk Factors

The price of gold tends to fluctuate slowly and less dramatically. It is known for its long-term stability, making it a relatively low-risk investment. On the other hand, Bitcoin’s volatility can lead to rapid price swings. In 2021, Bitcoin surged to over $60,000 before dropping by more than 50% within months. This volatility is a key consideration for risk-averse investors.

Moreover, gold is widely regulated, and its status as a financial asset is universally recognized. However, Bitcoin operates in an evolving regulatory landscape. Different governments have varied stances on cryptocurrencies. Future regulations could impact Bitcoin’s price or usability.

Gold also has a stable and well-established market with institutional and retail investors. Bitcoin’s adoption is growing, but remains a relatively new asset class. It is still in the early stages of institutional adoption, which could lead to future growth but also presents a risk if adoption slows or reverses.

The weekly chart below shows stable price growth in gold over the past decade, while Bitcoin has exhibited significant volatility. Therefore, investing in Bitcoin should be considered after a price correction of more than 50% from its peak to reduce risk.

Bitcoin vs. Gold: Which Investment Wins in Times of Uncertainty?

The upcoming US election on November 5, 2024, and the resulting market volatility could drive investments in Bitcoin and Gold. Historically, political uncertainty pushes investors toward safe-haven assets like gold due to its proven stability. If election results are unclear, market anxiety could weaken the US dollar, making gold an attractive option. Geopolitical tensions in the Middle East and rising oil prices further pressure global markets. These tensions increase gold’s appeal as a store of value during uncertain times.

On the other hand, Bitcoin offers high-growth potential for those willing to take more risk. Gold’s value may rise steadily during crises. Bitcoin’s performance, on the other hand, is driven by trends in digital asset adoption and monetary policy changes. Despite the recent strength of the US dollar, Bitcoin’s fixed supply and decentralized nature make it appealing during times of monetary uncertainty. However, Bitcoin remains highly volatile and sensitive to macroeconomic shifts. Gold may be the better option for long-term stability, while Bitcoin offers potential upside for risk-tolerant investors.

From a technical perspective, the Bitcoin/Gold ratio indicates that Bitcoin is currently more valuable than gold. However, the increased price ranges reflect the strong volatility in the Bitcoin market. The ratio has been consolidating within a triangle formation, with a key level of 34. Previously, a break of the triangle at level 8, after a period of consolidation, initiated strong Bitcoin rally. While Bitcoin surged, gold remained in consolidation, preparing for its next move. If the ratio breaks above 34, Bitcoin will likely initiate its next surge with strong upside potential.

Final Thoughts

In conclusion, Gold and Bitcoin present valuable investment opportunities but cater to different investors. Gold remains a safe-haven asset in economic and geopolitical uncertainty, offering stability and lower risk with its long-standing market presence. On the other hand, Bitcoin, with its high volatility and potential for significant returns, appeals to risk-tolerant investors. These investors are typically looking for growth in the digital asset space.

The technical analysis of both assets shows that their price movements are often correlated. However, Bitcoin’s price action tends to follow after gold’s surges. Since gold’s surge is approaching its target, Bitcoin is attempting to break out from a six-month consolidation. This opens the door for a potential Bitcoin rally. Ultimately, the choice between gold and Bitcoin depends on the investor’s risk appetite and investment horizon. Gold provides steady long-term value, while Bitcoin offers high-growth potential.