Digital Gold or Physical Gold?

Posted on May 19, 2022

By Paul Vanguard, for BullionMax.com

Any time the cryptocurrency market goes into correction, seems like everybody who doesn’t own any crypto starts gloating. Look, I’m no bitcoin maximalist, but even I can see the bias. CNN had the nerve to title an article "Sorry, crypto investors." What a bunch of jerks!

We have no interest in joining the schadenfreude party. Prices go up, prices go down. That’s what markets do. However, this particular bout of crypto market volatility forces us to consider comparisons between gold and "digital gold" aka bitcoin.

There are plenty of similarities between the two from certain viewpoints. Such as:

  • Both are inflation resistant
  • Both are considered stores of value
  • Both are immune to central bank manipulation

But calling bitcoin or any other cryptocurrency digital gold is a bridge too far. (After all, we already have “digital gold” in the form of unallocated gold funds, or what one of my coworkers calls “pay now, buy later” gold.) There’s the futures and options market, where many a fortune is made and many, many more are lost. There’s even gold ETFs that will swear on a stack of Bibles they own tons and tons of real gold bars somewhere – you can buy shares in those on your phone. We have all this, so we hardly need a second digital gold.

Prudent gold investors steer clear from paying gold prices for anything other than tangible physical gold. From that perspective, we didn’t even need a first digital gold.

Maybe more than most, what's coming into prominence is the difficulty of defining crypto assets in the familiar context of financial markets. Swissquote's analysts said in a report that, instead of trading like a safe-haven, bitcoin is acting like a crypto-proxy for Nasdaq. That's probably a definition that's going to be changed again and again as crypto grows and matures. We’ll see.

The neat thing about gold, however, is that it doesn't need to mature once it's out of the refinery. It has had centuries and centuries of settling into its role as a safe-haven.

Gold bullion investors pretty much know exactly how the asset will behave. The only surprises tend to be positive ones, such as gold's undercurrent being strong enough for the metal to move up alongside stocks. Most importantly, however, we know that gold is going to hold steady or appreciate as stocks, bonds and crypto and sovereign currencies are tanking.

On paper, or perhaps on screen, bitcoin looks like a great safe-haven with its fixed-supply cap and decentralization. What crypto lacks, and what it can’t quickly gain, is a historical track record. Cryptocurrencies are about 15 years old. They went from being a libertarian/anarchist thought experiment to a highly speculative asset, to a less speculative one, gained a great deal of institutional and private investor interest, and now? It’s working like a "crypto-proxy for the Nasdaq" stock exchange.

Compare to gold’s historical track record. Or, no, don’t – instead, just think about the hoards of gold coins that are uncovered every year by archaeologists and amateur detectorists. Think about the 1,400-year-old stash of gold coins in West Norfolk. Or last year’s Black Death-era hoard. For virtually all of human civilization, people have turned to gold in crisis – for fleeing an unsafe location, for hiding from criminals or enemies, for universally-recognized money. Gold literally lasts forever; doesn’t tarnish or rust, can’t be hacked or inflated away. Gold seems to have always been the universal safe-haven – the “gold standard” safe haven, if you’ll forgive a lame joke.

What is the next stage of the crypto market? It's definitely a thrilling ride, but safe-haven investors don't need thrills. We've also heard lots of talk about how cryptocurrencies are a hedge. And even though we are seeing a broad market selloff, there is no circumstance where you want your hedge to move in the same direction as other assets, especially if that direction is down.

Attempting to replace gold with bitcoin in a portfolio when bitcoin is notorious for 20% intraday losses? Well, I sure wouldn’t do it.

We don’t hate on cryptocurrencies – in fact, we accept crypto as a payment method. So if you're looking to swap your crypto in for a tangible asset that holds value in the most time-honored fashion, we can help you buy gold bullion or silver coins. Trust me, they’re WAY more fun to own than a tungsten cube.


Paul Vanguard is a lifelong precious metals enthusiast and a proud member of the BullionMax team.