Gold vs Bitcoin: Performance Through the Lens of Money Supply
Investors regularly compare gold and bitcoin as potential hedges against inflation and monetary dilution. But evaluating performance only in U.S. dollar terms misses an important signal: how each asset performs relative to the growth of money supply — commonly measured by M2. This article reexamines gold and bitcoin through that lens and explains what the comparison may mean for portfolio construction.
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Why adjust performance for money supply?
Broad money supply (M2) is an indicator of the total amount of money in circulation. When M2 grows rapidly, each unit of currency can be thought of as being diluted — meaning assets priced in that currency must rise just to maintain the same real purchasing power. Comparing asset returns to M2 growth reveals whether an asset simply keeps pace with monetary expansion or actually outstrips it.
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How gold looks when adjusted for M2
Gold performed strongly in nominal terms in 2025, delivering double-digit gains year-to-date. However, when we measure gold against the growth in M2, the picture becomes more muted. Historical ratio analysis shows that, despite recent rallies, gold's value relative to money supply remains below certain historical peaks — for example, levels reached in 2011 — and in some long-run comparisons is comparable to readings from prior decades. That suggests gold's nominal strength has not always kept pace with broad monetary expansion.
Bitcoin’s contrasting performance
Bitcoin presents a striking contrast. Each major bitcoin bull cycle has not only set new dollar highs but also pushed the asset to higher readings when measured relative to M2. In the current cycle, bitcoin reached new all-time highs both nominally and relative to money supply — implying that, so far, bitcoin has outpaced monetary growth in a way gold has not.
What the contrast suggests
- Different roles: Gold may be best understood as a time-tested defensive hedge — an asset for stability and long-term store of value.
- Bitcoin as monetary alternative: Bitcoin’s historical ability to exceed money-supply growth in cycles suggests it can behave like a monetary competitor or new monetary asset — albeit with much higher volatility.
- Portfolio implications: The distinction supports using gold and bitcoin for different portfolio purposes rather than seeing them as interchangeable — gold for defense, bitcoin for an aggressive monetary hedge or growth exposure.
Practical takeaways for investors
If you expect continued or accelerating monetary expansion, assets that have historically outpaced money supply may be more attractive for preserving purchasing power. However, that potential comes with added volatility and risk — particularly for bitcoin, which is far younger and more price-sensitive than gold.
Consider these simple guidelines:
- Hold gold as a stabilizing allocation for downside protection and long-term store of value.
- Use bitcoin (or similar positions) selectively if you seek potential growth relative to money supply and accept higher drawdowns.
- Match position size to risk tolerance — an aggressive monetary hedge does not replace defensive allocations.
Caveats and limitations
Measuring against M2 is useful, but not definitive. M2 is one measure of money in an economy and does not capture all monetary dynamics — international capital flows, central bank reserves, and adoption of digital payment systems all complicate the picture. Additionally, bitcoin’s record is short relative to gold’s centuries-long role as money-like value; future monetary regimes may alter historical patterns.
Finally, past performance — whether measured in dollars or relative to money supply — is not a guarantee of future outcomes.
Conclusion
Viewed through the lens of money supply, bitcoin and gold tell two complementary stories. Gold remains a durable defensive store of value; bitcoin has so far demonstrated the capacity to outpace money-supply growth during major cycles. That divergence highlights the importance of defining why you hold each asset in a portfolio and sizing positions according to the role you want them to play.
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