The competition between bitcoin and gold seems especially pertinent now because of the recent bout of global inflation and economic craziness.

We live in a defensive era. The world is going to hell in a handbasket. Well … perhaps not, but it’s possible. We need to think defensively.

There are analogies about how to be effectively defensive. In chess, for example, you can retreat into a fortress of pawns … and plausible deniability. In business, you might want to disrupt the market. On the other hand, you might want to disrupt insolvency.

In investing, you have plenty of options, but two stand out as the simplest: buy gold or bitcoin. For years now, experts have debated which is the better option in theory and in practice. It’s at least possible that these two assets stand out for a reason which are themselves a kind of defensiveness: neither are good for much else.

Or, to put it another way, in neither case are you essentially investing defensively rather than for utility. Gold and bitcoin don’t, in themselves, do anything for you. You can, of course, show off your gold jewellery. And you can, of course, sell your gold (or your bitcoin) and buy something you can actually use.

But if that is your intention, you might as well just keep your investments in cash. From an investment perspective, either has to be offering more than you would get by not investing.

What both theoretically offer is the notion of being a store of value, even though they are often bought in the hope of a price rise. Or to put that another way, what they both offer in theory is a hedge against a decline in the value of money. By buying gold or bitcoin, you are essentially adopting a position in opposition to fiat currency.

There is a paradox here, because the very fact that gold and bitcoin exist in this space means it’s less likely that central bankers will degrade the value of the currency. But it does happen, of course, as South Africans know all too well because of the financial genius of the politicians in that country to the north of us.

The competition between bitcoin and gold seems especially pertinent now because of the recent bout of global inflation and economic craziness. The economic disruption is much more worrying because it is taking place in the country which has, until now, been a haven of what you might call anti-gold. So long as the US administration championed sensible, ordinary, free market economics, the idea of investing in gold was kinda silly. Hoo boy! How that has changed in a sweet 100 days.

As I pointed out recently, gold is not just trading at a record level, it’s trading twice as high as its previous record level. This is not a time when gold is demonstrating its vim; it is a time when gold is completely shooting the lights out in a way that reminds you of … well … bitcoin.

Tails up

At the start of the year, the bitcoin advocates in this debate had their tails up. In a discussion on the issue at the World Economic Forum in Davos, Brian Armstrong, the co-founder and CEO of Coinbase, made this claim: “I think it’s clear at this point that bitcoin is a better form of money than gold. It is probably scarce, just like gold, but it’s more portable and divisible, so you can actually use it.”

Bitcoin has been the best-performing asset of the last 10 years, he pointed out, and so as a store of value, “I think it’s going to be important for governments to hold this over time. It might start with being 1% of their reserves, but I think over time, it’ll come to be equal to or greater than gold reserves,” he said.

That’s quite a claim, since the total value of mined gold — about 216,265 tonnes — is worth today about $22.3-trillion.  Bitcoin’s market capitalisation is currently about $1.89-trillion.

But there was a good reason at Davos in January 2025 to be cocky; bitcoin had just completed one of its most impressive runs, increasing in value from around $60,000 to more than $100,000. Bitcoin is now trading at $95,000. Oddly enough, since that point, gold has gone from $2,300 per ounce to $3,200. So, remind us again about the “store of value” argument; both of these assets seem more like disruptive tech stocks than defensive assets aimed at holding value.

And more than that, the difference between them is now even harder to discern, whatever your reason might be for investing in them. Yet, in the 2025 investment year, gold is having its turn on the podium and, oddly, it’s bitcoin that is taking the runner-up slot.  The graph below shows the bitcoin-to-gold ratio. When the graph rises, it was better to be in bitcoin, and when it dips, gold was the better investment.  As it stands at the moment, honours are pretty even.

The change in the fortunes of the two assets reflects a change in context.  There is a joke that goes: “Gold is for when the world collapses slowly. Bitcoin is for when it collapses in real-time on Twitter.”

It’s hard to know which one of those two scenarios we are in at the moment. Probably both! DM