Key Points
- Gold and Bitcoin are at or near record highs, sparking a debate over which is the better ‘hard money’.
- Investors are increasingly considering both as hedges against economic uncertainty, inflation, and geopolitical change.
During a period of increasing economic pressures, two traditionally contrasting assets, gold and Bitcoin, are experiencing significant growth, reaching or nearing their all-time highs. This has led to discussions about their roles as “hard money.” Gold has surpassed the $2,770 mark, while Bitcoin (BTC) is close to its all-time high of $73,800. These concurrent rallies suggest underlying market concerns. Both are being viewed as protective hedges against economic instability, intensifying the debate over which asset better maintains its value.
Understanding the hard money debate is crucial, particularly in uncertain times. With the US election being closely contested, questions have emerged about which asset is a better safeguard against potential economic instability, inflation, and geopolitical changes that could affect traditional markets.
The Rise of Precious Metals vs. Bitcoin
In the past year, gold has seen an increase of over 38%, while Bitcoin has grown by over 115%. These peaks have attracted comments from various investors on both sides of the hard money debate, including Chamath Palihapitiya, Larry Fink, and Peter Schiff.
Palihapitiya stated, “Bitcoin is going to be the resounding inflation hedge asset for the next 50 to 100 years,” during a recent podcast. He believes that people are now seeing the last instances of gold being used as a rational economic insurance policy.
However, gold’s recent peak has also attracted comments from prominent advocates like Peter Schiff, a notorious metal money advocate, who said: “Gold closed at a record high above $2,755, on track for its best year since 1979.” He added that in 1979, inflation was at its peak and the gold bull market was nearing its end, whereas now, inflation is at its trough and the gold bull market is just getting started.
Larry Fink, CEO of BlackRock, has a more nuanced view. He stated, “The role of crypto is digitalizing gold,” during a recent Fox Business segment. He expressed hope that regulators would view the Spot ETF filings as a way to democratize crypto.
Bitcoin: The ‘Digital Gold’
Bitcoin, unlike gold, doesn’t have a centuries-long track record and has experienced extreme volatility, posing challenges for those seeking stability. However, with Bitcoin nearing its all-time high, interest in its potential as “digital gold” is growing, particularly among younger and tech-savvy investors who value its portability and ease of transfer.
The term “digital code” is often associated with the development of computer science and digital information theory. Claude Shannon, in his groundbreaking 1948 paper “A Mathematical Theory of Communication,” laid the foundation for digital encoding and information theory. This helped shape the concept of digital code, Bitcoin, and the idea that hard money could be encoded via blockchain technology, encryption, and a cap on supply.
The rise in both gold and Bitcoin could be more than a reflection of individual market dynamics; it may signal a growing unease with the broader economy. Sharp moves in these assets have often preceded economic downturns as investors seek refuge from anticipated turbulence.
Academic research supports this thesis. Research by Bouri et al. (2017) notes that Bitcoin can serve as “a hedge similar to gold, particularly in response to currency devaluation and macroeconomic uncertainty.” This is echoed by Ratner and Chiu (2013), who observed that “investors often flock to assets perceived as safer, including precious metals and alternative assets like Bitcoin,” especially during periods of financial crisis. Reboredo (2013) further supports this thesis by highlighting the stability of precious metals like gold, stating that macroeconomic events and financial crises “drive investors to seek stability in gold,” reinforcing its role as a safe haven.
Gold’s supply grows incrementally through mining, with physical constraints that have kept its value stable over time. Bitcoin, however, operates on a fixed, coded supply cap of 21 million coins, which is expected to be reached by 2140. This programmed scarcity, combined with Bitcoin’s halving events (which reduce the reward for miners every four years), has reinforced a deflationary view of the asset.
As both gold and Bitcoin continue to rally, investors are left with a critical choice: a traditional asset that has long served as a safe haven or a newer, digital alternative with distinct advantages in portability and scarcity. The debate over which is the better “hard money” has yet to be settled, but one thing is clear—both assets are resonating with a growing audience that values stability in uncertain times. Whether the economy’s direction will validate this defensive positioning remains to be seen, but if history is any guide, gold, and Bitcoin may once again serve as early indicators of shifts on the horizon.