Professor Coin: Can Bitcoin Replace Gold? – Decrypt

Professor Andrew Urquhart is Professor of Finance and Monetary Know-how and Head of the Division of Finance at Birmingham Enterprise Faculty (BBS).

That is the seventh installment of the Professor Coin column, wherein I carry vital insights from printed tutorial literature on cryptocurrencies to the Decrypt readership. On this article, I research the connection between Bitcoin and gold, and discover whether or not Bitcoin can substitute gold.

For hundreds of years, gold has been the last word retailer of worth—utilized by civilizations as foreign money, collateral, and insurance coverage towards financial crises. However previously decade, a brand new contender has emerged: Bitcoin.

Also known as “digital gold,” Bitcoin has been touted by fanatics as a contemporary, decentralized different to treasured metals. However how legitimate is that this comparability? Can Bitcoin really substitute gold as a retailer of worth in the long run? Latest tutorial analysis provides invaluable insights.

The case for Bitcoin as digital gold

One of the vital cited arguments for Bitcoin’s position as “digital gold” is its shortage and decentralization. Like gold, Bitcoin is finite—its provide is capped at 21 million cash. In contrast to fiat foreign money, which could be printed by central banks, Bitcoin’s issuance is mounted and clear. Its provide algorithm is enforced by a worldwide community of miners, not a government.

A key paper on this area by Baur et al (2018) investigates Bitcoin’s conduct relative to gold. They discover that Bitcoin displays properties inconsistent with conventional safe-haven property. In contrast to gold, which retains worth in instances of disaster, Bitcoin tends to behave extra like a speculative asset—transferring with investor sentiment and broader market traits.

Nonetheless, others argue that Bitcoin’s maturing market construction may finally make it behave extra like gold. As Bitcoin adoption expands and volatility falls, it could play a bigger position as a portfolio diversifier. This argument is strengthened by latest work from Xu and Kinkyo (2023) who present that Bitcoin is a greater short-term hedge towards danger than gold, particularly throughout COVID-19 and the Russian-Ukraine battle.

Volatility: a sticking level

One of many largest criticisms of Bitcoin as a gold substitute is its volatility. In contrast to gold, which has traditionally exhibited low worth swings, Bitcoin can fluctuate dramatically in brief time frames. As an illustration, in 2025 alone, Bitcoin’s worth ranged from beneath $76,000 to over $111,000—hardly the sort of consistency desired in a safe-haven asset.

Educational work by Klein et al (2018) reinforces this concern. Their empirical evaluation finds that Bitcoin’s volatility is considerably greater than gold’s, and its correlations with conventional property are unstable over time. They conclude that Bitcoin shouldn’t but be thought-about an alternative to gold in risk-averse portfolios.

Apparently, the paper additionally notes that Bitcoin might provide greater upside potential, making it interesting to speculative traders reasonably than conservative savers. This distinction underlines a key level: Bitcoin and gold might serve basically completely different investor sorts.

Inflation hedge? The jury’s nonetheless out

A serious position of gold traditionally has been as a hedge towards inflation. In instances of foreign money debasement, wars, or financial easing, gold tends to retain and even improve in worth. Can Bitcoin do the identical?

The inflation-hedging properties of Bitcoin are explored by Dyhrberg (2016), who makes use of GARCH fashions to check the volatility clustering of Bitcoin with that of gold and the US greenback. She finds that Bitcoin displays some hedging capabilities much like gold and could also be positioned “in between” a foreign money and a commodity. Nevertheless, the research additionally cautions that Bitcoin’s brief buying and selling historical past and nascent infrastructure restrict its reliability on this position.

More moderen work by Bouri et al (2020) analyzes how Bitcoin performs throughout completely different inflation regimes and finds inconsistent proof of hedging properties. Whereas Bitcoin might act as an inflation hedge throughout some durations, it additionally responds strongly to danger urge for food, investor conduct, and media hype—components not sometimes related to gold.

Institutional adoption and altering correlations

As establishments start including Bitcoin to their stability sheets or ETFs, many teachers have explored whether or not Bitcoin’s correlations with different monetary property are shifting, probably making it extra “gold-like” over time.

Corbet et al (2019) recommend that Bitcoin’s conduct just isn’t static—it evolves as market construction matures. They present that in durations of media-driven hype, Bitcoin decouples from conventional markets, however throughout monetary panics, it tends to correlate extra with equities—in contrast to gold, which tends to maneuver inversely to shares.

This suggests that for Bitcoin to really substitute gold, it should not solely keep low correlation with danger property but additionally reveal reliability throughout crises—one thing it has but to persistently obtain.

Conclusion: Complement, not substitute—but

So, can Bitcoin substitute gold? Primarily based on present tutorial proof, the reply just isn’t but—and maybe not completely. Whereas Bitcoin shares sure traits with gold—shortage, decentralization, and rising recognition—it lacks the historic monitor file, stability, and crisis-tested resilience that gold possesses.

Nevertheless, given the rise of not solely institutional curiosity, however institutional possession of Bitcoin, some argue now could be the financialization of Bitcoin. Additional, as regulatory frameworks develop, market infrastructure matures, and volatility (maybe) declines, Bitcoin may evolve right into a extra gold-like asset.

For extra info, see:

Baur, D. G., Hong, Ok., & Lee, A. D. (2018). Bitcoin: Medium of Alternate or Speculative Property? Journal of Worldwide Monetary Markets, Establishments and Cash, 54, 177–189.

Xu, L., Kinkyo, T. (2023). Hedging effectiveness of bitcoin and gold: Proof from G7 inventory markets. Journal of Worldwide Monetary Markets, Establishments and Cash, 85, 101764.

Corbet, S., Lucey, B., Urquhart, A., Yarovaya, L. (2019). Cryptocurrencies as a

monetary asset: A scientific evaluation. Worldwide Assessment of Monetary Evaluation, 62, 192-199.

Klein, T., Pham, T. Q., & Walther, T. (2018). Bitcoin just isn’t the New Gold – A comparability of volatility, correlation, and portfolio efficiency, Worldwide Assessment of Monetary Evaluation, 59, 105–116.

Dyhrberg, A. H. (2016). Bitcoin, gold and the greenback – A GARCH volatility evaluation, Finance Analysis Letters, 16, 85–92.

Bouri, E., Jain, A., Roubaud, D., & Kristoufek, L. (2020). Cryptocurrencies as hedge and secure haven: New proof from a multivariate quantile evaluation, Journal of Worldwide Monetary Markets, Establishments and Cash, 67, 101190.