Bitcoin is also designed to be energy invariant – meaning that it scales with the amount of computing power and energy. In theory, gold doesn’t display this same property. For example, if humanity harnesses enough energy to seriously asteroid mine, the amount of gold available would quickly dampen its price while Bitcoin’s mining difficulty adjustment already bakes in a way to adjust the cost of issuing a Bitcoin with the amount of energy directed to the network.

Yet none of the benefits of the underlying asset matter as a hedge if you “own” gold or Bitcoin through paper ETFs beyond the price – which is the majority of the market in gold. This paper ownership is especially prevalent in gold, with some speculating that the ratio of paper gold to actual gold is about 20x, speaking to the difficulty of holding and transacting in gold. While that ratio is less certain in Bitcoin, there does seem to be more demand for self-custody, and the introduction of Bitcoin ETFs comes at a time when there was much more long-term ownership of Bitcoin versus amounts on exchanges for trading.

Short-term vs. long-term

If you look at the short-term, Bitcoin is correlated with risk equities. So, when there are immediate inflation pronouncements, such as with the surprise readout of slightly elevated inflation early this year, you might see Bitcoin dip and gold gain. This difference in how Bitcoin and gold have performed has led to several gold bugs declaring victory, perhaps prematurely, each time this happens. Yet, when you look at the long-term of Bitcoin, it has maintained its record as the best risk-reward adjusted return for a financial asset.

The long-term limit on Bitcoin scarcity – a cap of 21 million Bitcoin, is already playing out. Other cryptocurrencies that could form a new “digital money supply” are vanishing before Bitcoin. Bitcoin dominance, a measure of how much Bitcoin’s market value is relative to the value of all cryptocurrencies, has been steadily increasing, recently breaching the 60% mark, which Bitcoin has not touched since 2021.

Bitcoin combines both the ability to act as a store of value while gaining utility that powers more demand and price increases – this is a trend that doesn’t look likely to stop anytime soon and is already vastly outpacing the potential for gold – which no matter what form it’s in, struggles to serve as a medium of exchange because of how hard it is to transport.

Tariffs and a recession have allowed gold to shine – with central banks like China’s central bank shifting to buying gold to hedge itself from US dollar dominance and tariffs pumping up gold prices within the United States.

Geopolitical instability – and endgames?

Right now, gold and Bitcoin are not immune to geopolitical instability. Real gold is being shipped around and clustering towards the United States, with impending tariffs on metals being discussed. Meanwhile, Bitcoin mining equipment, largely produced by Chinese manufacturing companies, is seeing delays in shipment to American Bitcoin mining companies, which now provide a large amount of the worldwide computing power dedicated to mining Bitcoin and protecting the network.

One common point of both Bitcoin and gold is that they are supposed to be a hedge against various scenarios where the state has failed in some form. Gold is more placed for a monetary failure, where the government has failed to control the supply of money, but private markets still function and are able to communicate with one another. Bitcoin depends on the Internet, which, during protests, can be taken down in a region. Both of them will struggle to function in an endgame where people have lost the ability to govern, trade, and communicate.

Bitcoin has, as of late, been in the news for geopolitics. Some countries have embraced holding it in a “strategic reserve,” such as the United States, while others mine it. Early adopter El Salvador recently signed a deal with the IMF, with the IMF wanting to discontinue “voluntary public-sector buying of Bitcoin.” This wave of attention follows continued institutional interest. With multiple Bitcoin reserve bills in US states and a bill in place to buy one million Bitcoin on the books, it’s clear that Bitcoin hasn’t seen anywhere near the established nation-state holding of gold – and shows its floor is lower with smaller geopolitical tides turning in its favor sometimes to be reversed – it does show that its ceiling is much higher.

The gold standard, after all, was the old monetary order – and while it can’t be foreclosed on, investing in Bitcoin vs. gold feels like a decision between going to old realities or tapping into new ones – even a new one with state-sponsored alternatives like central bank digital currencies and state-mediated ones like stablecoins gaining traction.

Summary

A recession will likely make Bitcoin stand out against other cryptocurrencies, creating the conditions for it to stand alone as digital hard money. In the long term, its position for financial return and increasing utility looks promising – though, of course, it does not have the centuries-long track record of gold, and there are certainly underrated risks – for example, a hack or failure of a major exchange like what was seen with Bybit, which lost about $1.5bn (at the time) worth of Ethereum, would still significantly affect Bitcoin’s price.

Gold remains a proven hedge against falling fiat currencies and is currently performing how you’d expect. It can be a good solution to hedge against our most pressing problems today – from the declining value of fiat currencies to maintaining a store of value across many jurisdictions and markets. Yet its inability to adequately serve as a medium of exchange and its old-world principles may mean a higher floor – but a much lower ceiling than Bitcoin.