Better Buy: Bitcoin vs. Gold

Bitcoin (CRYPTO: BTC) may be up 30% this year, but gold is up 50%. That's simply not supposed to happen. In most years, Bitcoin has trounced the performance of gold.

So what's going on here? Is it time to double down on Bitcoin, with the expectation of catch-up gains later this year? Or is it time to run for the hills and put your faith in gold bullion? Let's take a closer look.

Historical performance

If you zoom out and take a long-term perspective, it's easy to pick a winner. According to data from WisdomTree, Bitcoin has been the top-performing asset class in the world in 9 of the past 12 years -- often by a wide margin.

In years that Bitcoin has surged in value, gold has been nowhere to be found. For example, in 2023, Bitcoin increased in value by 157%, while gold rose by only 15%. In 2021, Bitcoin increased in value by 60%, but the price of gold declined by 4%.

But here's the thing: In the years that Bitcoin collapsed in value, you wanted to have all your money in gold. It was simply the best safe-haven asset in the world. In 2022, Bitcoin lost 65% of its value, but gold was up a very modest 0.4%. In 2018, Bitcoin lost 73% of its value, but gold was only down 1%.

iShares Bitcoin Trust ETF chart by TradingView

Ever since the spot Bitcoin ETFs launched last year, they have significantly outperformed their counterpart gold ETFs. Case in point: The iShares Bitcoin Trust is up a robust 180% since launching in January 2024. In that same time period, the iShares Gold Trust is up 97%.

So, solely based on past performance, Bitcoin gets the nod over gold. You can pick just about any set of years you want over the past decade, and Bitcoin will outperform gold. The only caveat, of course, is that Bitcoin has exhibited extreme volatility, and can usually be counted on to lose more than half its value every few years.

Which is the better hedge?

In recent years, it has become fashionable to refer to Bitcoin as "digital gold." The thinking here is that Bitcoin is a scarce asset, just like gold. Only 21 million bitcoins can ever exist, and 19.9 million are already in circulation.

Image source: Getty Images.

If it is indeed "digital gold," Bitcoin might be able to act as a hedge against macroeconomic uncertainty and geopolitical risk, just like physical gold. And that's exactly what appears to be happening right now.

In fact, Wall Street traders are calling the current move out of dollars and into Bitcoin and gold the "debasement trade." To make a long story short, traders are betting on the further devaluation of the U.S. dollar and the ongoing debasement of fiat currencies worldwide.

There is a mix of factors at work here, including huge fiscal deficits, concerns about the independence of the Federal Reserve, and potential runaway inflation from sky-high tariffs. At the end of the day, the only way out of the current debt crisis may be to print more money, and that will only devalue the dollar even more.

If gold zooms past $4,000, then Bitcoin goes to $165,000?

Interestingly, Bitcoin appears to be tracking gold trends, but on a lagging basis. In short, if gold soars higher, then Bitcoin is sure to go along for the ride -- a few weeks later. Thus, if you are expecting gold to soar through the $4,000 level soon, then Bitcoin is almost certainly poised to surge higher as well.

But how high? According to JPMorgan Chase, Bitcoin could rise to $165,000 in 2025. According to the bank, Bitcoin remains undervalued compared to gold, so it's likely to play catch-up for the remainder of the year. Once you run the numbers and adjust for volatility, then Bitcoin could be as much as 42% undervalued relative to gold.

And the winner is...

Gold might actually be a better investment than Bitcoin right now as long as the "debasement trade" is in play. It's clear that Bitcoin is lagging behind gold, and that most traders still view gold as the ultimate hedge against macroeconomic uncertainty and geopolitical risk.

But over the long haul, I'd rather be in Bitcoin. If history is any guide, Bitcoin should continue to outshine gold over the next decade as well.

JPMorgan Chase is an advertising partner of Motley Fool Money. Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin and JPMorgan Chase. The Motley Fool recommends WisdomTree. The Motley Fool has a disclosure policy.