Professor Coin: Can Bitcoin Substitute Gold? – Decrypt

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

That is the seventh installment of the Professor Coin column, during which I deliver essential insights from revealed tutorial literature on cryptocurrencies to the Decrypt readership. On this article, I examine the connection between Bitcoin and gold, and discover whether or not Bitcoin can change 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 up to now decade, a brand new contender has emerged: Bitcoin.

Sometimes called “digital gold,” Bitcoin has been touted by lovers as a contemporary, decentralized different to treasured metals. However how legitimate is that this comparability? Can Bitcoin really change gold as a retailer of worth in the long run? Current tutorial analysis provides useful insights.

The case for Bitcoin as digital gold

One of the cited arguments for Bitcoin’s function as “digital gold” is its shortage and decentralization. Like gold, Bitcoin is finite—its provide is capped at 21 million cash. Not like fiat foreign money, which might 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 reveals properties inconsistent with conventional safe-haven belongings. Not like gold, which retains worth in occasions of disaster, Bitcoin tends to behave extra like a speculative asset—shifting with investor sentiment and broader market tendencies.

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 function 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 conflict.

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 in brief time frames. For example, in 2025 alone, Bitcoin’s worth ranged from below $76,000 to over $111,000—hardly the form of consistency desired in a safe-haven asset.

Tutorial 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 belongings are unstable over time. They conclude that Bitcoin shouldn’t but be thought of an alternative to gold in risk-averse portfolios.

Curiously, the paper additionally notes that Bitcoin might supply greater upside potential, making it interesting to speculative traders relatively 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 significant function of gold traditionally has been as a hedge in opposition to inflation. In occasions 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 examine additionally cautions that Bitcoin’s quick buying and selling historical past and nascent infrastructure restrict its reliability on this function.

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 belongings are shifting, probably making it extra “gold-like” over time.

Corbet et al (2019) counsel that Bitcoin’s conduct 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 means that for Bitcoin to really change gold, it should not solely preserve low correlation with danger belongings but in addition exhibit reliability throughout crises—one thing it has but to persistently obtain.

Conclusion: Complement, not substitute—but

So, can Bitcoin change gold? Primarily based on present tutorial proof, the reply isn’t but—and maybe not totally. Whereas Bitcoin shares sure traits with gold—shortage, decentralization, and rising recognition—it lacks the historic observe 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’s 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 data, see:

Baur, D. G., Hong, Okay., & Lee, A. D. (2018). Bitcoin: Medium of Trade or Speculative Belongings? 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 Evaluation of Monetary Evaluation, 62, 192-199.

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