Bitcoin and gold are both popular investments at the moment. These assets offer something different to traditional asset classes such as stocks, bonds, and cash, and can potentially help investors diversify their portfolios and enhance their returns.
Is one a better investment than the other right now? Let’s take a look at the pros and cons of each to see if one offers a more favourable setup than the other.
Bitcoin: the pros
Starting with Bitcoin, there are several pros to highlight here.
One is that the asset is in a strong uptrend at present. Over the last year it has climbed about 80% while over the last five years it has risen about 900%. Trends can be powerful forces. Often, they can persist for extended periods, providing opportunities for long-term investors.
Another is that the backdrop looks supportive. Right now, Bitcoin is seeing significant interest from institutional investors such as investment managers, hedge funds, and family offices. It also looks set to benefit from a more favourable regulatory environment in the US. This could lead to even more interest from institutions.
Additionally, the asset is still not owned by a lot of investors. So, there is scope for more buyers to come along. I wouldn’t be surprised to see a lot more investors allocate some capital to Bitcoin in the years ahead, particularly in the US where it’s possible to invest within one’s regular brokerage account via Bitcoin ETFs. If we do see increased interest from investors, Bitcoin’s price could rise.
Finally, supply is limited. Bitcoin has been designed so that there will only ever be 21 million tokens. And many of these will have been lost over the years. This lack of supply should support prices in the long run.
Bitcoin: the cons
As for the cons, there are several of these too. One is that Bitcoin is extremely volatile. This is an asset that can fall 20% or more in the blink of an eye. And pullbacks of 50% or more are not uncommon. Recently, one major Wall Street analyst said that in the short term, Bitcoin could fall back to $50,000 (before potentially rising to $250,000).
Another issue to be aware of is that Bitcoin is still a relatively new asset class. Launched in 2009, it has been around for less than 20 years. This adds some uncertainty. Will it be around in another 10 years? We don’t know.
One other negative for UK investors is that it’s not possible to invest via Bitcoin ETFs. If one wants exposure to the Bitcoin spot price, they need to invest in the asset directly. Currently, not many UK investment platforms offer access to Bitcoin. So, one may need to open a new investment account to get exposure to the asset class.
Gold: the pros
Turning to gold, it is also in a strong uptrend. Over 12 months it is up about 40%. Over five years, it is up about 70%. So, from a technical perspective, it looks good.
Meanwhile, it also has a supportive backdrop. Gold is seen as a ‘safe-haven’ asset so it tends to do well when there is economic or political uncertainty. Currently, geopolitical uncertainty is sky-high due to conflict in Europe and the Middle East. This could support the precious metal.
Now like Bitcoin, gold has limited supply. This should help to support its price in the years ahead. One key difference between gold and Bitcoin, however, is that gold has been around for a long time. This should provide a degree of confidence in its long-term viability, as it has proven its resilience through various economic and geopolitical upheavals.
Another difference between gold and Bitcoin is in relation to volatility. While gold prices can fluctuate at times, they are nowhere near as volatile as Bitcoin prices.
One other advantage of gold is that it’s possible to invest via ETFs. Today, investment platforms such as Hargreaves Lansdown and AJ Bell offer access to a range of different gold ETFs. So, one can potentially get exposure to gold in minutes. And they can do this via their regular brokerage accounts.
Gold: the cons
On the negative side, gold doesn’t pay any income (neither does Bitcoin). So the only way to profit from it is via price increases. And these are not guaranteed. While the trend is up right now, this could come to an end at some stage in the future.
Gold can also experience long periods where it doesn’t do much. For example, between 2013 and 2019 it did not rise at all.
Another drawback of gold is that if you buy it directly, you need to think about storage and insurance, which can be expensive. One can get around this by investing via ETFs though.
The verdict: What’s a better investment Gold or Bitcion?
Comparing the two alternative assets, it’s hard to pick a winner. I think both could potentially play a role in a diversified portfolio today.
That said, I would not load up on either asset class given their respective drawbacks. For gold, I would cap exposure at 5% of a portfolio while for Bitcoin I would cap portfolio exposure at 2%.
Further reading:
Based in London, Edward is a distinguished investment writer with an extensive client portfolio comprising a diverse array of prominent financial services firms across the globe. With over 15 years of hands-on experience in private wealth management and institutional asset management, both in the UK and Australia, he possesses a profound understanding of the finance industry.
Before establishing himself as a writer, Edward earned a Commerce degree from the prestigious University of Melbourne. Complementing his academic background, he holds the esteemed Investment Management Certificate (IMC) and is a proud holder of the Chartered Financial Analyst (CFA) qualification.
Widely recognized as a sought-after investment expert, Edward’s insightful perspectives and analyses have been featured on sites such as BlackRock, Credit Suisse, WisdomTree, Motley Fool, eToro, and CMC Markets, among others.
You can contact Ed at edward@goodmoneyguide.com
