Professor Coin: Can Bitcoin Replace Gold?

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

That is the seventh installment of the Professor Coin column, during which I deliver vital 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 change gold.

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

Also known as “digital gold,” Bitcoin has been touted by lovers as a contemporary, decentralized various to valuable metals. However how legitimate is that this comparability? Can Bitcoin actually change gold as a retailer of worth in the long run? Latest educational analysis gives priceless 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. Not like fiat forex, 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 house by Baur et al (2018) investigates Bitcoin’s conduct relative to gold. They discover that Bitcoin displays properties inconsistent with conventional safe-haven property. Not like gold, which retains worth in occasions of disaster, Bitcoin tends to behave extra like a speculative asset—transferring with investor sentiment and broader market developments.

Nonetheless, others argue that Bitcoin’s maturing market construction might 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 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. As an illustration, in 2025 alone, Bitcoin’s worth ranged from below $76,000 to over $111,000—hardly the sort 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 increased than gold’s, and its correlations with conventional property are unstable over time. They conclude that Bitcoin mustn’t but be thought-about an alternative to gold in risk-averse portfolios.

Apparently, the paper additionally notes that Bitcoin could supply increased upside potential, making it interesting to speculative buyers somewhat than conservative savers. This distinction underlines a key level: Bitcoin and gold could serve basically totally different investor sorts.

Inflation hedge? The jury’s nonetheless out

A serious position of gold traditionally has been as a hedge towards inflation. In occasions of forex 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 displays some hedging capabilities much like gold and could also be positioned “in between” a forex 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 totally different inflation regimes and finds inconsistent proof of hedging properties. Whereas Bitcoin could act as an inflation hedge throughout some intervals, it additionally responds strongly to danger urge for food, investor conduct, and media hype—elements not usually related to gold.

Institutional adoption and altering correlations

As establishments start including Bitcoin to their steadiness 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 isn’t 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 actually change gold, it should not solely keep low correlation with danger property 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 educational proof, the reply isn’t but—and maybe not totally. Whereas Bitcoin shares sure traits with gold—shortage, decentralization, and growing 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 could be the financialization of Bitcoin. Additional, as regulatory frameworks develop, market infrastructure matures, and volatility (maybe) declines, Bitcoin might evolve right into a extra gold-like asset.

For extra info, see:

Baur, D. G., Hong, Okay., & Lee, A. D. (2018). Bitcoin: Medium of Alternate 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 Assessment 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 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.