• Volatility is the key force driving gold investors away and siphoning more of them into Bitcoin. Gold prices are likely to dip in the long and medium time span if the price rallies across bitcoin markets are anything to go by. 
  • Most millennials grew up in the age of the internet and are more inclined towards adopting digital assets such as Bitcoin. A survey by deVere indicates Millennials are more likely to choose decentralization rather than institutions when making financial decisions. This could be the reason why nearly two-thirds of them have already traded bitcoin over gold.

Scarcity is the main similarity that connects both bitcoin and gold. There will always be 21,000 bitcoins and approximately 180,000 tons of gold. Behind this similarity is a thick line of differences and hatred between followers of each asset. According to JP Morgan, money is now flowing out of gold into bitcoin. And experts believe this trend will continue beyond 2021 – either in the medium or long term. 

Primary gold exchange-traded funds or ETFs are losing inflows. For example, in the final quarter of 2020 alone, iShares Gold Trust (IAU) and SPDR Gold Shares (GLD) saw outflows of at least $4.4 billion. 

On the other hand, a less similar ETF – Grayscale Bitcoin Trust (GBTC) saw about $1 billion in cash inflows. And this amount has been within the same time frame that Gold ETFs have lost their shin. 

But what are the differences between Gold and Bitcoin – that are catalyzing this difference in numbers? 

Have a look.

Volatility

Both assets have different levels of volatility. Analysts measure volatility through the Average True Range (ATR) – a metric describing the average length of time an asset moves. 

Traders (short and long term) will always prefer an asset with a high volatility ratio mainly because such an asset provides more movements and, therefore, better opportunities. In our case, Bitcoin has a higher volatility ratio, and this is why traders are bent towards it rather than gold.

For example, check the chart below to compare interests on a $1 invested in bitcoin and gold over a 1.3-year time-frame. 

check the chart below to compare interests on a $1 invested in bitcoin and gold over a 1.3-year time-frame

Coinciding with Bitcoin’s prevailing price rallies at the start of the year, more people have turned to cryptocurrency. Here is an example of when volatility was a more evident reason for choosing Bitcoin. During the 2017 bull-run, Bitcoin rose from $1,151 to $19,783 within 11 months. 

By February of the following year, BTC plummeted from its 2017 high to around $5,951 – then, in a matter of days, the coin faced a more dramatic upward correction and hit $11,537. 

Such spikes and exciting price changes provide better opportunities for either a short or long position. On the other hand, is gold with an extremely low volatility ratio? The asset has played within the same price range since 2013. 

It’s a consistent price of $1,050 – $1,400 until Q4 of 2018, and $1,300 – $1,700 between 2019 and 2020. The 2017 bitcoin bull-run is even believed to have caused a cold year for cold – as there isn’t a single day in 2017 that gold witnessed more than 2.5 percent higher or lower than it had closed the preceding day.  

Experts said the last time the asset had witnessed such a harsh market was back in 1996. 

60-day Bitcoin volatility
60-day Bitcoin volatility
60-day Gold volatility
60-day Gold volatility

Sources of demand

The supply of bitcoin is dependent on mining activities. The bitcoin blockchain caps the maximum number of bitcoins that will ever exist at 21 million. Once the supply attains this number, mining operations will come to an end. 

Most bitcoin proponents have questioned the source of bitcoin, which to this day remains unclear. But different suggestions provide the source of demand for bitcoin due to buy-to-hold strategies, the asset’s digital blockchain, and price speculation.

The good thing about gold is its easily predictable sources of demand and seasonality patterns. For example, analysts anticipate the prices and trading volume of gold to increase in the first two months of the year, drop and then rise again towards the middle of the year in July and August.

These patterns are good for predicting when the demand for gold is likely to surge and when it will drop. Yet bitcoin’s unpredictability has been termed good for traders, as this generates more profits. 

Even before the inception of cryptocurrencies such as BTC, unpredictable market movements, political events, and economic patterns proved good for the investor – as they drove in more profits. 

Well, this article hasn’t mentioned all of the differences between Gold and BTC. But the above two are key drivers causing a generational shift from trading gold (traditional assets) into bitcoin (digital assets). To further help you understand how these differences are affecting forex traders, check the following points below.

Margin Requirements 

Brokers will always set higher margin requirements for bitcoin as compared to gold. Bitcoin has more volatility, and we advise traders to take this as a primary consideration while deciding the amount of leverage to use. 

Media Sensitivity 

Bitcoin traders are supposed to remain updated on market news. It is because Bitcoin is extremely sensitive to news. For instance, the price of bitcoin rose by 300 percent between 2020 and today. 

This price rally is believed to be a result of institutional adoption and shifting regulations. For example, in 2020, Fidelity Bank and PayPal took the move to adopt bitcoin into their ecosystem. 

Such news is good for market volatility and even better when they are driving the price upwards. However, some pieces of news could be catastrophic and result in major slides.

Stop and limit spacing 

Bitcoin’s high volatility also benefits its traders with wider “stop-loss-and-take profits.” As a day trader, utilizing the Average True Range when configuring your orders will have immense potential on the profits you make.

Position Sizing 

It’s hard to allocate a small trading lot size to gold, given its low volatility. Allocating as little as 5 or 10 percent of your trading account is a disciplined approach recommended to every trader. However, position sizing is often preferable when trading bitcoin rather than when trading gold. 

deVere Group found out in its 2020 survey, only 37 percent of Millennials prefer gold as an investment. The rest prefer Bitcoin, and this explains the billions of dollars flowing into Bitcoin ETF’s and the crypto market in general.

Conclusion

Bitcoin fluctuated to an all-time high less than two weeks after crossing its 2017 high of $20,000. As of now, 2021 seems a promising year for bitcoiners – a situation that should put gold investors on their feet.