Professor Andrew Urquhart

Professor Andrew Urquhart is Professor of Finance and Financial Technology and Head of the Department of Finance at Birmingham Business School (BBS).

This is the seventh installment of the Professor Coin column, where I share key insights from academic literature on cryptocurrencies with the Decrypt readership. This article examines the relationship between Bitcoin and gold, exploring whether Bitcoin can replace gold.

For centuries, gold has been the ultimate store of value—used by civilizations as currency, collateral, and insurance against economic crises. In the past decade, however, a new contender has emerged: Bitcoin.

Often referred to as “digital gold,” Bitcoin is considered by enthusiasts a modern, decentralized alternative to precious metals. But how valid is this comparison? Can Bitcoin truly replace gold as a long-term store of value? Recent academic research offers valuable insights.

The Case for Bitcoin as Digital Gold

One of the most cited arguments for Bitcoin as “digital gold” is its scarcity and decentralization. Like gold, Bitcoin is finite—its supply is capped at 21 million coins. Unlike fiat currency, which can be printed by central banks, Bitcoin’s issuance is fixed and transparent. Its supply algorithm is enforced by a global network of miners, not a central authority.

A key paper by Baur et al (2018) investigates Bitcoin’s behavior compared to gold. They find that Bitcoin behaves inconsistently with traditional safe-haven assets. While gold retains value in times of crisis, Bitcoin often behaves like a speculative asset, moving with investor sentiment and broader market trends.

However, other arguments suggest that Bitcoin’s evolving market structure may make it resemble gold over time. As adoption increases and volatility decreases, Bitcoin may emerge as a more prominent portfolio diversifier. Supporting this, recent work by Xu and Kinkyo (2023) indicates that Bitcoin is a better short-term hedge against risk than gold, especially during crises like the COVID-19 pandemic and the Russian-Ukraine war.

Volatility: A Sticking Point

A significant criticism of Bitcoin as a replacement for gold is its volatility. Unlike gold, which has historically exhibited low price swings, Bitcoin can fluctuate dramatically in short periods. For instance, in 2025 alone, Bitcoin’s price varied from under $76,000 to over $111,000—far from the consistency expected in a safe-haven asset.

Academic work by Klein et al (2018) reinforces this concern. Their empirical analysis shows that Bitcoin’s volatility is significantly greater than gold’s, and its correlations with traditional assets are unstable over time. They conclude that Bitcoin should not yet be considered a substitute for gold in risk-averse portfolios.

Interestingly, the paper notes that while Bitcoin may provide higher upside potential, it generally appeals more to speculative investors than conservative savers. This highlights a crucial point: Bitcoin and gold may serve fundamentally different investor needs.

Inflation Hedge? The Jury’s Still Out

Historically, gold has served as a hedge against inflation. During times of currency debasement, wars, or monetary easing, gold typically retains or even increases in value. But can Bitcoin fulfill this role?

The inflation-hedging properties of Bitcoin were explored by Dyhrberg (2016), who found that Bitcoin exhibits some hedging capabilities similar to gold, positioning it “in between” a currency and a commodity. However, the study cautions that Bitcoin’s brief trading history and emerging infrastructure limit its reliability in this regard.

More recent research by Bouri et al (2020) assesses Bitcoin’s performance across different inflation environments, yielding inconsistent evidence of its hedging properties. While Bitcoin may act as an inflation hedge during some periods, it also responds strongly to risk appetite and media hype, factors not typically associated with gold.

Institutional Adoption and Changing Correlations

As institutions add Bitcoin to their balance sheets or ETFs, many scholars have investigated whether Bitcoin’s correlations with other financial assets are shifting, potentially making it more “gold-like” over time.

Corbet et al (2019) suggest that Bitcoin’s behavior is not static; it evolves as market structure matures. They illustrate that during media-driven hype, Bitcoin decouples from traditional markets, but during financial panics, it tends to correlate more closely with equities—unlike gold, which typically moves inversely to stocks.

This suggests that for Bitcoin to genuinely replace gold, it needs to maintain low correlation with risk assets and prove reliable across crises—something it has yet to accomplish consistently.

Conclusion: Complement, Not Substitute—Yet

So, can Bitcoin replace gold? Based on current academic evidence, the answer is not yet—and perhaps not entirely. While Bitcoin shares attributes with gold—scarcity, decentralization, and increasing recognition—it lacks the historical track record, stability, and crisis-tested resilience of gold.

However, with rising institutional interest and ownership of Bitcoin, some argue we are witnessing the financialization of Bitcoin. As regulatory frameworks develop and market infrastructure matures, Bitcoin could evolve into a more gold-like asset.

References

• Baur, D. G., Hong, K., & Lee, A. D. (2018). Bitcoin: Medium of Exchange or Speculative Assets? Journal of International Financial Markets, Institutions and Money, 54, 177–189.
• Xu, L., Kinkyo, T. (2023). Hedging effectiveness of bitcoin and gold: Evidence from G7 stock markets. Journal of International Financial Markets, Institutions and Money, 85, 101764.
• Corbet, S., Lucey, B., Urquhart, A., Yarovaya, L. (2019). Cryptocurrencies as a financial asset: A systematic analysis. International Review of Financial Analysis, 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, International Review of Financial Analysis, 59, 105–116.
• Dyhrberg, A. H. (2016). Bitcoin, gold and the dollar – A GARCH volatility analysis, Finance Research 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 International Financial Markets, Institutions and Money, 67, 101190.