How Bitcoin Compares to Other Assets: The 2024 Update

How Bitcoin Compares to Other Assets: The 2024 Update

How does Bitcoin stack up against other investment assets in 2024?

Today’s guide digs into Bitcoin’s standing next to gold, stocks, real estate, and fiat currency.

We’ll examine key factors like volatility, returns, and accessibility.

The aim is to help you understand where Bitcoin fits in your investment strategy.

Let’s get into it.

Bitcoin vs Gold: Major Differences and Similarities

1. Investment Use Cases

• Both are often considered stores of value.
• Gold has millennia of history as a safe haven.
• Bitcoin is seen as more speculative.

Both Bitcoin and gold can act as stores of value, but their use cases diverge. Gold has a long history as a trusted safe haven. It has been used for centuries to preserve wealth during economic instability. The stability of gold comes from its physical nature and a well-established value system.

On the other hand, Bitcoin provides a new form of digital currency that adds a layer of flexibility. Its digital nature allows for easier transfer, especially across borders, and it can be divided into smaller units. However, many investors see Bitcoin as a speculative asset rather than a stable store of value due to its short history and high volatility.

For an in-depth look at these trends, see our piece on Bitcoin vs Traditional Investments: Latest Data and Trends 2024.

JP Thierot, CEO of Uphold, said, “Gold and silver have been stores of value and mediums of exchange for at least 4 millennia… There is room for cryptocurrencies too since their digital nature is a fundamental difference from gold and silver.”

2. Volatility and Risk

• Bitcoin’s price can swing wildly.
• Gold is more stable, especially during economic downturns.
• There is a low correlation between Bitcoin and gold movements.

Bitcoin’s price is notorious for its large swings. The standard deviation of Bitcoin’s price is 75%, indicating its high risk. This can make it attractive for short-term trading but risky for those looking for long-term stability.

Gold, by contrast, is more stable. Its value tends to hold steady, and it often serves as a safe haven during economic downturns. This consistency makes it less dangerous, offering a stable asset in a diversified portfolio.

The correlation between Bitcoin and gold is low, meaning their prices don’t move in tandem. This lower correlation adds to the diversification benefits when both assets are included in a portfolio.

For more on volatility, check our article on How Bitcoin’s Volatility Stacks Up Against Traditional Assets Today.

“My vote would be for gold because it has thousands of years of a historical record as a store of value, has one-fifth the volatility of bitcoin, and doesn’t face the same competition risk,” said David, former Chief Economist for Merrill Lynch Canada.

3. Accessibility and Ownership

• Bitcoin is easily transferable and divisible.
• Physical storage and insurance are needed for gold.
• Blockchain allows easy verification of Bitcoin ownership.

Bitcoin offers great flexibility in terms of accessibility and ownership. It’s easily transferable and can be divided into very small units. Transactions are verified through a decentralized blockchain, avoiding the need for physical verification.

Gold, however, requires physical storage, and its ownership often necessitates insurance. Physical storage can be cumbersome and costly, especially if you’re dealing with large amounts. Each transaction requires physical verification, adding another layer of complexity.

Bitcoin’s blockchain ensures transparency and security, which cannot be matched by physical assets like gold. For those interested in more details, our article on How to Balance Bitcoin with Traditional Investments in 2024 can provide more insights.

4. Supply and Demand

• Bitcoin has a fixed supply of 21 million coins.
• Gold supply is influenced by mining and discoveries.

Bitcoin’s fixed supply of 21 million coins introduces a level of scarcity that can drive its value. This fixed supply means that no central authority can “print” more Bitcoin, protecting its value from inflationary pressures.

Gold, on the other hand, has a supply that is still growing. New mining activities and discoveries can increase the supply, impacting its value. While gold is also considered scarce, its supply dynamics differ significantly from Bitcoin’s.

For further exploration on these dynamics, see how Bitcoin fits in a traditional portfolio in How Bitcoin Fits in a Traditional Portfolio in 2024: Latest Insights.

5. Regulation and Security

• Bitcoin operates on a decentralized blockchain.
• Gold can be subject to government regulation and seizure.

One of Bitcoin’s key features is its decentralized blockchain network. This makes it resistant to government manipulation. The decentralization ensures that no single entity can control its supply or value.

Gold has a history of being subject to regulation and even government seizure. An example of this is the U.S. Executive Order 6102 during the Great Depression, which forced individuals to sell their gold to the federal government.

“Bitcoin has a finite supply. The government has been printing unprecedented amounts of money since 2008, and it is starting to have an impact on the wider economy. That manipulation cannot be manufactured in the same way since Bitcoin is limited to only 21 million coins,” says Chris Kline, COO and co-founder of Bitcoin IRA.

For those looking to compare these regulations across various assets, take a look at our analysis in the article Bitcoin vs Bonds: A Side-by-Side Risk and Return Breakdown.

Conclusion

In summary, Bitcoin and gold offer distinct advantages and drawbacks as investment assets. Their differences in volatility, accessibility, supply constraints, and regulatory environment offer various ways to diversify and protect a portfolio.

For further deep studies, You might read “Digital Gold: Bitcoin and the Inside Story of the Misfits and Millionaires Trying to Reinvent Money” by Nathaniel Popper, for a deep dive into Bitcoin’s rise and impact, or “The Gold Standard: Perspectives in the Austrian School” for a historical view on gold’s role in the economy. Both offer valuable insights into these two very different assets.

Bitcoin vs Stocks: Evaluating Performance and Characteristics

1. Historical Performance

When comparing Bitcoin to stocks, it’s clear that Bitcoin has offered higher returns, albeit with significantly more volatility. When we checked, Bitcoin’s annual return often surpasses those of major indices like the S&P 500. For instance, as of 2023, Bitcoin had outperformed the S&P 500 over a ten-year period, but with considerable price swings that can stress even seasoned investors.

Stocks, on the other hand, provide dividends and have a more predictable growth pattern. Dividends can be a reliable source of income, which is absent in Bitcoin investments. Moreover, stocks generally align with a long-term growth trend driven by corporate earnings and economic conditions.

Both assets present different risk-return profiles, making them suitable for different types of investors. Bitcoin’s high-risk, high-reward nature contrasts with the relatively stable returns from stocks.

2. Market Behavior

Stocks are primarily influenced by corporate earnings, economic indicators, and market cycles. For example, a positive earnings report can boost a company’s stock price, while disappointing economic data can drag down the entire market.

Bitcoin’s price movements are often driven by news, market sentiment, and regulatory updates. When positive news about adoption or technical advancements hits the market, Bitcoin prices tend to rise. Conversely, regulatory crackdowns or negative news can trigger sharp declines.

One key point to note is that stock market downturns don’t always correlate with Bitcoin’s performance. During market crashes, some investors flock to Bitcoin as an alternative, causing its price to rise, while in other scenarios, both assets may decline together. This makes Bitcoin an interesting tool for diversification.

3. Investment Strategy

Investment strategies for stocks often include long-term savings plans and retirement accounts. Stocks are seen as being less volatile over long periods and are often part of diversified portfolio strategies.

Bitcoin, by contrast, is used both for long-term holding and short-term trading. Some investors buy and hold Bitcoin for the long run, expecting it to appreciate. Others take advantage of its volatility for short-term gains.

Including Bitcoin in a portfolio can enhance diversification. Bitcoin’s low correlation with stocks means that adding it to a traditional portfolio might reduce overall risk. According to a recent study, many traditional investors started embracing Bitcoin as part of their diversification strategy in 2024.

The Winner: It’s All About Objectives

If you’re in it for high returns and can stomach the volatility, Bitcoin stands out. But for those looking for steady growth and dividends, stocks are more suitable. Each has its place in a well-rounded investment strategy, offering unique benefits depending on your goals.

For more on Bitcoin’s impact on financial markets, see The Impact of Bitcoin on Financial Markets in 2024.

Bitcoin vs Real Estate: Long-term Value and Investment Potential

Stability and Tangibility

Real estate offers a level of stability that Bitcoin cannot match. A house or building is a physical asset, making it less affected by market whims. Investors find comfort in its tangibility. Real estate values typically grow steadily, and property can provide a consistent stream of rental income.

Bitcoin, on the other hand, is a digital asset. Its value can swing dramatically within a short period. This volatility stems from its nature—Bitcoin lacks the tangibility and inherent utility that real estate possesses. It doesn’t generate steady income in the form of rent.

Comparison Table: Stability and Tangibility

Liquidity and Transaction Process

Bitcoin wins in liquidity. It’s available for trading 24/7, and transactions are quick. Whether through exchanges or person-to-person transfers, Bitcoin can be liquidated almost immediately. Transaction fees are generally low, making it an efficient asset for fast trading.

Real estate, on the other hand, has low liquidity. Buying or selling property is a lengthy process that involves various legal and logistical hurdles. Transaction costs are also high, including agent fees, taxes, and other costs.

Comparison Table: Liquidity and Transaction Process

Entry Barriers and Ownership Costs

Real estate has high entry barriers. You often need a large amount of capital to buy property. Ownership also comes with ongoing costs like maintenance, property taxes, and insurance.

Bitcoin lowers these barriers. You can buy fractions of Bitcoin, making it accessible even for small investors. The costs for owning Bitcoin are minimal—mainly storage fees if using a third-party service.

Comparison Table: Entry Barriers and Ownership Costs

After weighing these aspects, it’s clear that each asset has its attractive points depending on the investor’s goals. Real estate offers stability and steady income but comes with higher initial costs and lower liquidity. Bitcoin stands out for its high liquidity and low entry barriers but is highly volatile and does not generate consistent income.

In this head-to-head, neither asset is universally superior. The best choice boils down to your investment strategy. For steady growth and moderate risk, real estate is a solid option. If you’re after high liquidity and lower entry barriers, and you can stomach the volatility, Bitcoin is worth considering.

For more on this topic, see our detailed Bitcoin vs Real Estate: Risk vs Reward Analysis for 2024.

2023 Recap: Bitcoin vs Fiat Currency Trends

• Bitcoin viewed as an inflation hedge, fiat currency under inflation stress
• Bitcoin gaining acceptance, but still facing regulatory hurdles
• Performance and regulation differences outlined

1. Inflation Hedge

Bitcoin as an Inflation Hedge

Bitcoin has often been regarded as a potential hedge against inflation. This idea gained traction in 2023, particularly as some economies faced currency instability. Many experts argued that Bitcoin’s fixed supply makes it similar to gold, providing a counterbalance to inflationary pressures.

Historically, Bitcoin’s performance during high inflation periods has shown its potential as a store of value. For example, during the COVID-19 pandemic, many investors looked to Bitcoin as a way to protect their assets from the impact of widespread economic stimulus measures.

In 2023, the estimated total cryptocurrency gains were $37.6 billion, and Bitcoin led the charge with a significant rise in value. This upward movement reinforced the narrative that Bitcoin could serve as a hedge against inflation, particularly in economies with unstable fiat currencies.

Fiat Currency Under Inflationary Pressure

Fiat currencies, on the other hand, are subject to inflationary pressures due to their supply being controlled by governments and central banks. In 2023, several regions experienced high inflation rates, causing devaluation of their local currencies.

For example, the US Dollar faced inflationary pressures partly due to ongoing interest rate changes and economic policies aimed at stimulating growth. Unlike Bitcoin, which has a capped supply of 21 million coins, fiat currencies can be printed in larger amounts, sometimes leading to reduced purchasing power.

Comparing the historical performance during periods of high inflation, fiat currencies tend to lose value, while assets like Bitcoin can appreciate, making Bitcoin an attractive option for some investors seeking to avoid the detrimental effects of inflation.

2. Global Acceptance and Regulation

Increasing Acceptance of Bitcoin

In 2023, Bitcoin saw increased acceptance from major companies, suggesting a shift towards mainstream adoption. Large firms started integrating Bitcoin payments, allowing consumers to buy products and services using the cryptocurrency. This marked a significant advancement in the global acceptance of Bitcoin.

According to recent data, adoption rates among consumers in lower and middle-income countries also increased, driven by the lack of access to traditional financial services and inefficiencies in existing systems. However, Bitcoin’s decentralized nature still presents issues in terms of regulatory compliance and financial stability in some regions.

A study noted that Bitcoin surged by 65.4% as of March 13, 2024, which indicates its growing appeal to both retail and institutional investors.

Legal Tender Status and Regulatory Impacts

Fiat currency remains legal tender worldwide, ensuring its universal acceptance for daily transactions. Despite its widespread usability, fiat currency continues to face inflationary challenges and regulatory constraints impacting its value.

For Bitcoin, regulatory developments in 2023 had mixed effects. Some countries imposed stricter regulations, limiting its use and increasing compliance requirements. Nevertheless, these actions also brought a greater sense of legitimacy to the asset, encouraging more mainstream institutions to consider its integration.

Regulatory challenges still loom large. While Bitcoin’s use as a transactional medium continues to grow, legal frameworks remain in flux, affecting its adoption rates. Regulations in major economies like the US and the EU have introduced hurdles and complexities, though they also provide clearer guidelines for usage and investment.

Expert Recommendations

Looking forward to the next 12 months, professionals need to stay informed about both inflation trends and regulatory changes impacting Bitcoin. With global inflation remaining a concern, Bitcoin could continue to be perceived as a viable inflation hedge. However, investors should also be cautious about regulatory news and its potential impact on Bitcoin’s value and acceptance. Updates on these fronts are crucial for making informed investment decisions.

Consider focusing part of your portfolio on Bitcoin while balancing it with other investments to mitigate risk. Keep an eye on regulatory developments and be prepared to adjust your strategy as needed. For more insights on why Bitcoin is favored by some investors, read the article on “Why Bitcoin Trumps Traditional Assets for Some Investors” at this link.

Stay updated on the trends and continue researching as regulatory environments adapt. This will help you to maximize the potential benefits while managing the inherent risks associated with this dynamic asset class.

Predictions for 2024: What Investors Should Know

• Continued volatility expected for Bitcoin
• Regulatory changes could impact investor sentiment
• Technological advancements might enhance security and transaction speed

1. Expected Volatility

Bitcoin: Anticipate Continued Price Swings

Throughout 2024, Bitcoin’s price is expected to continue with significant fluctuations. Bitcoin reached an all-time high in March 2024, exceeding $73,000, followed by a sharp 15% drop after the halving event in April, closing at $60,749. These swings are consistent with Bitcoin’s historical pattern, reinforcing that price volatility remains a defining feature of this digital asset. Historical data suggests that low volatility often precedes a price rise, hinting that Bitcoin’s reduced volatility in early 2024 could signal another upward trend (Statista).

Defensive Strategies: Setting Stop-Loss Orders, Diversification

To navigate this volatility, investors should consider implementing defensive strategies. Setting stop-loss orders can help manage risk by automatically selling Bitcoin when it hits a predefined price level, thus minimizing potential losses. Additionally, diversification of investment portfolios can cushion against Bitcoin’s fluctuations. Allocating investments across various asset classes, including stocks and gold, is a prudent approach to mitigate overall risk. According to Fundstrat’s Sean Farrell, maintaining a balanced perspective on Bitcoin’s cycles is key, particularly during volatile months like summer.

Understanding Macro-Economic Impacts on Bitcoin

Macro-economic factors will also play a pivotal role in influencing Bitcoin’s price. Economic data, geopolitical events, and overall market sentiment can cause rapid changes in Bitcoin’s value. For instance, Bitcoin’s market cap surged in 2023 amid significant macro-economic shifts and reduced volatility, indicating broader acceptance and maturity of this digital currency. Staying attuned to global economic trends and potential shocks will be vital for Bitcoin investors in 2024.

2. Future of Regulations

Watch for Regulatory Changes in Major Economies

In 2024, regulatory changes in key markets like the US and the EU could substantially impact Bitcoin’s value and investor sentiment. For example, the approval of spot Bitcoin ETFs in the US in January 2024 contributed to a price surge, demonstrating how regulatory actions can shape market trajectories. The Financial Innovation and Technology for the 21st Century Act (FIT21), passing in the House of Representatives, has set a positive sentiment among investors (Fidelity Digital Assets).

Potential Effects on Bitcoin’s Value and Investor Sentiment

Regulatory decisions, such as tax policies, trading rules, and digital asset reporting requirements, can either bolster or dampen Bitcoin’s market dynamics. For instance, Miles Fuller from TaxBit highlighted that new tax information reporting for digital assets will legitimize cryptocurrencies further. However, tighter regulations might restrict trading opportunities and drive some investors away, affecting Bitcoin’s price stability and growth potential. Thus, keeping an eye on regulatory trends and their implications is crucial for strategic planning.

Stay Updated on Legal Frameworks for Investing/Trading Bitcoin

Investors should remain informed about evolving legal frameworks governing Bitcoin investments. Regulatory bodies globally are tightening controls to enhance market transparency and protect investors, impacting how Bitcoin can be traded and held. Resources like governmental advisories and financial news outlets can offer real-time updates, enabling investors to adapt strategies promptly. For instance, recent regulatory developments around Bitcoin ETFs and digital asset tax compliance have provided both opportunities and challenges, reshaping investment approaches.

3. Technological Advancements

Developments in Blockchain Technology in 2024

Advancements in blockchain technology will likely influence Bitcoin’s performance in 2024. Innovations enhancing scalability, security, and efficiency of blockchain can solidify Bitcoin’s position as a robust digital asset. Improvements in Layer 2 solutions, such as the Lightning Network, are expected to accelerate transaction speeds and reduce costs, making Bitcoin more practical for everyday use. Enhanced protocols and security features will also mitigate risks associated with cyber threats and fraud.

Impact on Bitcoin’s Security and Transaction Speed

Technological upgrades will enhance Bitcoin’s security and transaction processing capabilities. For example, developments focusing on quantum-proofing Bitcoin can safeguard it against future cyber threats posed by quantum computing. Such technological progress will increase user confidence and foster broader adoption, possibly driving up Bitcoin’s value. The integration of advanced cryptographic techniques will further ensure transaction authenticity and prevent fraudulent activities, boosting Bitcoin’s credibility as a secure investment.

Potential Integration with Other Digital Assets and Financial Systems

The integration of Bitcoin with other digital assets and traditional financial systems is anticipated to grow in 2024. Cross-chain solutions and decentralized finance (DeFi) protocols are being developed to enable seamless interoperability between Bitcoin and other cryptocurrencies, enhancing liquidity and utility. Additionally, major financial institutions are exploring ways to incorporate Bitcoin into their services, including investment products and payment solutions. This mainstream integration will likely broaden Bitcoin’s user base and drive sustained demand.

Overall, 2024 holds significant promise for Bitcoin, provided investors stay vigilant about volatility, regulatory shifts, and technological developments.

Looking Ahead: Your Bitcoin Strategy for 2024

Bitcoin offers flexibility, high returns, and digital ease but comes with high volatility. Gold, stocks, and real estate each have their own strengths and risks. Bitcoin’s low correlation with other assets brings diversity to your portfolio.

Bitcoin remains a crucial part of today’s investment landscape. Assess how it fits into your strategy. Keep tabs on regulatory updates and technological progress.

Are you ready to capitalize on Bitcoin’s potential amid evolving markets? Make informed choices to shape your investment future effectively.