Professor Coin: Can Bitcoin Replace Gold?

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, through which I convey essential insights from printed educational 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 exchange gold.

For hundreds of years, gold has been the final word retailer of worth—utilized by civilizations as foreign money, collateral, and insurance coverage in opposition to financial crises. However prior to now decade, a brand new contender has emerged: Bitcoin.

Sometimes called “digital gold,” Bitcoin has been touted by fanatics as a contemporary, decentralized different to valuable metals. However how legitimate is that this comparability? Can Bitcoin actually exchange gold as a retailer of worth in the long run? Current educational analysis affords invaluable insights.

The case for Bitcoin as digital gold

Probably the most 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 coins. Not like fiat foreign money, which may be printed by central banks, Bitcoin’s issuance is fastened and clear. Its provide algorithm is enforced by a world 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 reveals properties inconsistent with conventional safe-haven property. Not like gold, which retains worth in instances of disaster, Bitcoin tends to behave extra like a speculative asset—shifting 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 might play a bigger position as a portfolio diversifier. This argument is strengthened by current work from Xu and Kinkyo (2023) who present that Bitcoin is a greater short-term hedge in opposition to danger than gold, particularly throughout COVID-19 and the Russian-Ukraine battle.

Volatility: a sticking level

One of many greatest criticisms of Bitcoin as a gold substitute is its volatility. Not like gold, which has traditionally exhibited low worth swings, Bitcoin can fluctuate dramatically briefly time frames. For example, in 2025 alone, Bitcoin’s worth ranged from underneath $76,000 to over $111,000—hardly the form 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 of an alternative choice to gold in risk-averse portfolios.

Apparently, the paper additionally notes that Bitcoin might provide greater upside potential, making it interesting to speculative buyers quite than conservative savers. This distinction underlines a key level: Bitcoin and gold might serve essentially totally different investor varieties.

Inflation hedge? The jury’s nonetheless out

A serious position of gold traditionally has been as a hedge in opposition to inflation. In instances of foreign money debasement, wars, or financial easing, gold tends to retain and even enhance 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 reveals some hedging capabilities just 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.

Newer work by Bouri et al (2020) analyzes how Bitcoin performs throughout totally different inflation regimes and finds inconsistent proof of hedging properties. Whereas Bitcoin might act as an inflation hedge throughout some intervals, it additionally responds strongly to danger urge for food, investor conduct, and media hype—elements 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, presumably making it extra “gold-like” over time.

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

This suggests that for Bitcoin to really exchange gold, it should not solely preserve low correlation with danger property but in addition show reliability throughout crises—one thing it has but to constantly obtain.

Conclusion: Complement, not substitute—but

So, can Bitcoin exchange gold? Primarily based on present educational proof, the reply is just not but—and maybe not completely. Whereas Bitcoin shares sure traits with gold—shortage, decentralization, and growing recognition—it lacks the historic observe report, 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, Okay., & Lee, A. D. (2018). Bitcoin: Medium of Exchange or Speculative Assets? Journal of Worldwide Monetary Markets, Establishments and Cash, 54, 177–189.

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

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

financial asset: A systematic analysis. Worldwide Evaluation of Monetary Evaluation, 62, 192-199.

Klein, T., Pham, T. Q., & Walther, T. (2018). Bitcoin is not the New Gold – A comparison of volatility, correlation, and portfolio performance, Worldwide Evaluation of Monetary Evaluation, 59, 105–116.

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

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