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Crypto Versus Gold: A Battle for the Ages or No Contest?

Some investors believe gold will continue as the ultimate currency. Others think the future will propel cryptos to dominance.

High market volatility and peak global economic instability have led many to weigh in on the relative merits of gold and crypto, with many leaning into the idea that gold and crypto technology have much in common that could lead to a mutually inclusive path. As the currency-dominance battle for the ages takes shape, here’s a reality check.

Gold is the world’s oldest means of exchange, dating back to pre-biblical times. For thousands of years, gold has been a commodity and a currency. Central banks, monetary authorities and governments continue to validate gold’s role in the worldwide financial system as they hold metal as an integral part of foreign exchange reserves. Over the past years, governments have added to gold reserves.

Cryptocurrencies are the world’s newest means of exchange, reflecting technological advances. Bitcoin, the grandfather of the crypto revolution, is the child of blockchain technology. In a 2008 whitepaper, the elusive Satoshi Nakamoto described Bitcoin’s original plan and protocol.

London has long been the financial hub for the international gold market. At the turn of this century, the U.K. sold half its reserves as the government considered gold a barbarous financial relic. The sale caused gold to drop to $252.50 per ounce in 1999. Since auctioning off reserves, gold’s value has increased.

Cyberspace is Bitcoin’s financial hub as the crypto revolution transcends international borders. While some governments have banned cryptos, they have embraced blockchain technology that improves financial transactions’ efficiency and speed. Bitcoin has given birth to about 21,000 other cryptos over the past years.

In late 2022, gold and cryptos declined from all-time highs but remained in long-term bull markets. Some market participants believe gold will continue as the ultimate currency, while others think the future will propel cryptos to a dominant position. Meanwhile, gold and crypto technology have much in common that could lead to a mutually inclusive path.

But we think the battle of the ages for currency dominance may be more hype than fact. Here’s why:

For gold, every dip has been a buying opportunity since the 1999 low. Gold has made higher lows and higher highs since then, when the price reached a bottom of $252.50 per ounce. It traded to new all-time highs in 2008, 2011, 2020 and 2022. While gold has suffered substantial corrections, the price has not been below $1,000 per ounce since 2009, and every significant decline has been a buying opportunity since 1999.

Bitcoin traded as low as five cents per token in 2010 and remained below $1 until February 2011. Bitcoin moved above $100 for the first time in April 2013, above $1,000 in November 2013, and over $10,000 in November 2017. It reached a high of $68,906.48 in November 2021 and has not been below the $10,000 level since September 2020.

Gold volatility is low and 2022 is shaping up to be a new era for the precious metal. As of late September, quarterly historical volatility in the gold futures market was at the 14.72% level. Central banks have added to gold holdings over the past years, with China and Russia absorbing domestic production. In 2022, Russia declared that 5,000 roubles are exchangeable for one gram of gold, establishing a gold standard in response to sanctions by the U.S., Western Europe, and their worldwide allies. The ruble rose to a multi-year high against the U.S. dollar after the move to provide gold backing. If China follows Russia, it could usher in a new era for gold as a means of exchange in the worldwide financial system.

Crypto volatility is unprecedented — even as governments embrace blockchain technology. As of late September, quarterly historical volatility in the Bitcoin futures market was at the 135% level. Some governments, including China, have banned Bitcoin, but China and most other countries have embraced blockchain technology. China is rolling out its digital yuan, based on blockchain technology. Other countries, including the U.S., are exploring central bank digital currencies that embrace blockchain technology.

The bottom line? Gold and cryptocurrencies are not mutually exclusive means of exchange. Gold holds a historical grip on governments and individuals. Countries validate gold’s role and future by holding the metal as part of their currency reserves. Countries are working diligently to create digital currencies that embrace the efficiency and speed of blockchain technology. Gold and digital currencies can co-exist, but Bitcoin’s future depends on regulatory and governmental support and legality.

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