By Barsha Bhattacharya
Since the introduction of Bitcoin, many people wonder if Bitcoin challenges gold. For centuries, gold has been a safe-haven investment and a store of value, and similarly to physical gold, Bitcoin is often referred to as “digital gold.”
So, how Bitcoin affects gold? What is the connection between Bitcoin and gold? How are they alike and different, as well as investment parallels? Price correlation, and how each respond to economic and geopolitical developments.
Similarities and Differences
Both Bitcoin and gold are stores of value. A store of value means that it’s an asset you can hold and not experience a loss of wealth over time.
Gold has always been valuable because it is a finite resource. There will be nothing more than it currently exists if not gradually increased through mining. Here are some of the significant differences between the two.
- Divisibility: Bitcoin is highly divisible, with each coin divisible into 100 million Satoshis, allowing for microtransactions. Gold, while divisible, is less practical for small transactions due to its physical nature.
- Portability: You can transfer Bitcoins digitally in seconds anywhere in the world, but gold needs to be physically transported, which can be costly and inconvenient.
- Volatility: Bitcoin prices can fluctuate wildly, reflecting their speculative nature. For example, its value surged to nearly $20,000 in 2017 before crashing to around $6,000 (Provident Metals). Gold, on the other hand, is known for its relative stability, with price movements being more gradual.
- Utility: Gold has value in electronics, jewelry, and other industries as well. This drives demand. Bitcoin is a digital asset and lacks utility other than for financial applications.
| Aspect | Bitcoin | Gold |
| Supply | Fixed cap of 21M coins | Slowly increasing via mining |
| Divisibility | Highly divisible (Satoshis) | Less practical for small transactions |
| Portability | Digital, easily transferable | Physical, requires secure storage |
| Volatility | High, speculative | Relatively stable |
| Utility | Financial and blockchain applications | Industrial, jewelry, and financial uses |
How Bitcoin Affects Gold?
In recent years, cryptocurrency trading has provided investors with another option for hedging against inflation or a poor economy.
Where gold has historically been the investment to fall back on for many investors, although this remains true to some extent, many believe that Bitcoin is the new gold.
1. Investment Trends
In 2017, many investors sold their gold for Bitcoin, with the caveat that this was not as widespread across the board. Yet recently, the intrigue of institutional investors and new Bitcoin spot ETFs by BlackRock and Fidelity might redirect investment away from gold.
However, gold trading is a common factor in various portfolios, particularly for people who want to invest in something stable. The World Gold Council notes that adding it to a diverse portfolio reduces volatility and improves returns, which is not the case for Bitcoin.
2. Price Correlation
Despite being called “digital gold,” Bitcoin and gold do not exhibit a strong price correlation. A 2021 study in the Journal of Behavioral and Experimental Finance found a near-zero correlation between their returns from 2011 to 2021.
It challenged the notion that Bitcoin is a direct substitute for gold. During this period, gold prices fluctuated between $1,100 and $2,000 with no clear trend, while Bitcoin surged from below $100 to over $50,000.
The study suggests several reasons for this low correlation:
- The “digital gold” narrative may not be fully embraced by investors, leading to different treatment of the two assets.
- A substitution effect, where investors sell gold to buy Bitcoin, driving their prices in opposite directions.
- A catching-up effect, where investors allocate to Bitcoin to match gold’s market weight, influences price dynamics.
3. Economic and Geopolitical Factors
Both assets are impacted by movements in macroeconomic activity, just at different times and to different levels.
Gold increases in demand when macroeconomic activity shows it may be predicting a slowdown or when inflation happens, as people forage for safe holdings.
When Russia invaded Ukraine, the price of gold rose due to demand. When Russia invaded, however, Bitcoin fell 25% and fluctuated back and forth.
The same goes for COVID. When markets crashed in 2020, Bitcoin fell almost 50 percent as uncertainty loomed, but gold remained stable enough that people did not devalue their safe investment.
In 2020, however, gold peaked at a three-thousand-month increase due to pandemic demand, while Bitcoin was still trying to recover from the downturn. Gold is also sensitive to geopolitical events.
When there’s a chance of a tariff from Xi Jinping, gold investments skyrocket in anticipation of currency changes.
This is not as much of an issue for Bitcoin, as it’s decentralized, but it can be for its miners, as if equipment is required but held hostage in Chinese regulatory timing, it hurts the US network.
| Event | Bitcoin Response | Gold Response |
| 2022 Ukraine Invasion | High volatility, mixed performance | Price increases as a safe-haven asset |
| 2020 COVID-19 Crash | Initial sharp drop, later recovery | Stable, gradual increase |
| Trade Wars/Tariffs | Less affected, regulatory risks | Increased demand as a currency hedge |
Future Outlook
Now that you have an idea about how bitcoin affects gold, it is time to see what the relationship between bitcoin and gold might look like in the future. However, the future seems uncertain.
Looking ahead in 2025, Marion Laboure from Deutsche Bank suggests Bitcoin could become the “21st-century digital gold” due to its deflationary characteristics and growing acceptance.
However, because of its volatile nature, people find it difficult to rely on it. Some of the major reasons behind Bitcoin’s volatility include:
- Two-thirds of the Bitcoins are used for speculation, and that causes price swings.
- Large transactions often disrupt the supply-demand balance.
- Investor perceptions influence the value, and that causes fluctuations.
The World Gold Council has mentioned that Bitcoin cannot be a replacement for gold. It adds complex features to the portfolio depending on risk, volatility, and asset correlation against the diversifying correlation of gold.
The impact of Bitcoin on gold is becoming complex in 2025. Some investors like to shift between the two, and the role of gold is always safe in contrast to Bitcoin’s volatility.
As global events are evolving, both these assets are going to play significant roles. Gold has always been an established player in the market.
It is held by central banks and seen as a safer hedge against losing value in fiat currency. It appears that these two vehicles will co-exist peacefully, at least for the time being.
Gold will always exist since people want it. Bitcoin will always exist because of those who believe in a separate financial system regarding the future of money.
So, Which One Will You Invest In?
The rise of Bitcoin has introduced a new player in the world of investment, but how Bitcoin affects gold is a little complicated.
Even though these two have some similar characteristics, gold and Bitcoin are significantly different in utility, volatility, and investor perception. Moreover, the price movements are not related, and they respond differently to geopolitical and economic events.
In the future, both of these are going to maintain their distinctive functions and serve different parts of the investment community. Investors have to think of their risk tolerance, financial goals, and investment opportunities when they are choosing between the two assets.
