Why This Billionaire Investor Says Bitcoin Is Crushing Gold

People are starting to choose Bitcoin over gold -- should you?

Billionaire investor and CEO of Galaxy Digital Mike Novogratz says Bitcoin (BTC) is a better store of value than gold. Speaking during the investment management firm's Q3 earnings call, Novogratz said gold is getting crushed by Bitcoin.

During the earnings call, Novogratz said gold has not met people's expectations in recent years. "If you'd asked gold bugs two years ago where the price of gold would be, given what's happened in monetary and fiscal conditions around the world, they would have all answered far higher than here, $1,800," he said.

Novogratz, a well-known crypto fan, thinks this is because there's been a substitution of Bitcoin for gold. "I still think gold was probably an okay asset to own in this environment, but it's just gotten crushed by Bitcoin," he explained.

It seems as if people are buying one of the world's newest currencies instead of one of its oldest. Indeed, according to the Financial Times, gold is among the worst performing assets of 2021. In contrast, Bitcoin is up over 60% since the start of the year, according to data from CoinMarketCap.

Why is Bitcoin replacing gold?

Many people see Bitcoin as a form of digital gold. The idea is that, like gold, Bitcoin acts as a good store of value. A store of value is any type of asset that isn't going to lose its value or deteriorate over time. For example, gold should be worth the same -- or more -- in 15 years' time as it is today.

Some say Bitcoin does not work as a store of value, primarily because of its volatility. But Novogratz disagrees. In fact, he says the fact that over 200 million people participate in the Bitcoin ecosystem means the question isn't even up for debate anymore.

"A store of value gets its worth from the social construct that people agree that it's valuable -- that I'm going to hold my hard-earned money, my labor, my savings in this form," he explained.

It is true that Bitcoin has some big advantages over gold. It's a lot easier to move around, and a lot cheaper to store. It isn't perfect, but -- unlike gold -- it can be used as a form of payment.

Like gold, there is a limited supply of Bitcoin as only 21 million BTC will ever be produced. Against a backdrop of growing inflationary concerns, there's an appeal to assets that might hold their value.

Why investors should still be cautious

Bitcoin certainly has some advantages over gold. But if you're looking for a safe haven for your money, Bitcoin doesn't yet check all the boxes.

For starters, Bitcoin is still a volatile asset -- ideally a store of value should hold its worth even if there's a financial crisis. And Bitcoin hasn't been around long enough for us to know if that will happen.

Bitcoin is currently down 30% from its high of six weeks ago, and those kinds of swings are not unusual. It's true that Bitcoin has gained in value this year, but it is still a risky investment.

One big risk is the potential impact of stringent cryptocurrency regulation around the world. We know that increased regulation is on the horizon, it's just not clear what form it will take. It doesn't look like the U.S. or European countries will ban Bitcoin as China did, but heavy restrictions could deal a big blow to the crypto market as a whole.

That said, some form of additional regulation would mean more investor protection and could build confidence in the long term. SEC Chair Gary Gensler called crypto the "Wild West" -- and not without reason. There are a host of scams and other types of crypto fraud; for every article of a crypto millionaire you'll find other stories of unwary investors who've lost their cash.

We mentioned that Bitcoin is cheaper to store and easier to move around than gold. But the other side to that argument is that cryptocurrency platforms can be hacked. Bitcoin is easier to steal than gold -- and it's very difficult to recover any stolen coins.

You can own Bitcoin and gold

You don't have to choose between Bitcoin and gold, you can own both. Both assets can play a part in a diversified portfolio -- as long as you understand the risks involved. Diversification is a great way to minimize overall risk, especially if you aren't investing money you need for other financial goals.

If you want to include some Bitcoin in your portfolio, you can buy it from any top cryptocurrency exchange. Just don't let talk of digital gold blind you to the potential risks.