After reaching an all-time high of $3,673.95 per ounce on September 9, 2025, the price of gold is once again ramping up, trading just below the record. Year-to-date, gold has outperformed Bitcoin (BTC) with an impressive 37.4% gain, while Bitcoin investors have seen only an 18.7% increase over the same period.
This seemingly contradicts the narrative that Bitcoin, as digital gold, will outperform spot-traded gold in the long run. After all, since the launch of spot-traded Bitcoin Exchange-Traded Fund (ETFs) in early 2024, they have outpaced gold’s capital inflows on multiple occasions.
As of September, there is $166 billion worth of BTC in ETFs, with gold ETFs holding more than double that at around $407 billion. But the question is, does the accelerated interest in the ancient metal constitute a short-term macro phenomenon, or a failure of Bitcoin’s long-term store-of-value thesis?
Why is gold up again?
Many analysts attribute gold’s rise to the Federal Reserve, the world’s de facto central bank that maintains the dollar as the world’s reserve currency. But that is only a part of the picture. The underlying driver of gold’s price is actually the prevailing political system across the world: democracy. Democracies have embedded social contracts in which governments provide for their citizens’ welfare to win elections. In that pursuit, the feasibility of providing welfare becomes a distant concern. Instead, such a system creates an inescapable incentive structure for persistent fiscal spending on social programs, healthcare, defense and infrastructure.
By default, political candidates who fail to ratchet such spending become less competitive than those who promise the world. The United States Government (USG) spent $6.75 trillion in fiscal 2024, of which 54% ended in welfare spending and 13% on national defense. In turn, the nation’s economic model became debt-powered.
To put it differently, the US has found itself in a permanent state of budgetary deficits. After President Trump’s One Big Beautiful Bill Act (Public Law 119-21), the Congressional Budget Office (CBO) expects a cumulative deficit increase to $4.1 trillion over a ten-year period. For fiscal 2025 alone, CBO forecasts a budgetary deficit of $1.9 trillion.
By 2033, it is expected that the Social Security Old-Age and Survivors Insurance (OASI) will be insolvent. This may seem bleak, but USG is in a unique position. As a hegemonic empire that transcends mere nations, the USG is not constrained in the same way as an ordinary nation-state.
Namely, it issues the world’s primary reserve currency, the dollar, giving it an exorbitant privilege: the ability to finance deficits by exporting dollars abroad. This ensures that demand for US debt remains robust, at least until confidence in the dollar erodes.
Accordingly, this dynamic runs as follows:
- Mass democracy institutionalizes spending irrespective of fiscal realities.
- Politicians, incentivized by elections, rely on the Federal Reserve to perpetuate a debt-driven economy.
- This process ensures the structural debasement of the dollar.
- Yet, US hegemonic power cushions the fallout, allowing the cycle to persist far longer than it otherwise could.
Even more ominously, this dynamic incentivizes politicians to import an entire new voting bloc in the hopes of rapidly expanding the population to keep servicing the ballooning debt. But now that the US labor market is weak, having been recently revised downward by a record-breaking 910,000 jobs, the Fed’s interest rate-cutting regime is a near-certainty.
That’s because the Fed needs to stimulate the economy by making capital cheaper. However, lower interest rates reduce the yield advantage of Treasuries as dollar-denominated assets. Consequently, investors are starting to shift out of cash and bonds into assets that hold value when real yields drop, such as gold.
Investors are increasingly seeking value in gold
When the USG runs budget deficits persistently, spending more than it collects in taxes, it issues Treasury bonds as a way to borrow money. In turn, it has to pay enormous interest on the debt, having exceeded $1 trillion in Q4 2023.
In fact, for federal spending in fiscal 2025, net interest payments exceeded national defense expenditures, at 14% vs 13% of the total budget, respectively. This means that the nation’s economy is drastically losing its capacity for productive growth, as the bulk of capital is drained into debt obligations. Yet, those debt obligations are critical to maintain as they form the basis for investors’ confidence in the dollar and the buying of debt as Treasuries.
Now, what happens when deficits balloon, but there aren’t enough buyers at reasonable interest rates? At this time, the Federal Reserve steps in by purchasing Treasuries directly or indirectly, thus expanding its balance sheet.
Consequently, as the monetary base is expanded, people can buy less with the dollar than they could previously. Commonly, this is referred to as inflation, which is effectively another informal tax as a consequence of government spending.
Ultimately, even with US hegemonic status, the dollar steadily erodes as a reliable measure of value. Its role as the global anchor weakens, not through sudden collapse, but through the slow grind of inflation, a hidden levy on all dollar holders. This is precisely why investors turn to gold: it stands outside the cycle of deficits, debt monetization and political expediency. Anticipating this unsustainable trajectory, other central banks keep accumulating gold. We are now at a tipping point at which foreign central banks are about to hold more gold than Treasuries.
Of course, given the scarcity of gold in the Earth’s crust, at around 0.00000031%, it stands to reason that continued central bank accumulation will keep driving its price higher. Unlike the dollar, whose supply can be conjured at will by Federal Reserve bureaucrats tapping a keyboard, the supply of gold is bound by geology, and there is no alchemy to expand it. This immutable scarcity is what underpins gold’s value, and it is precisely this logic that Bitcoin was designed to replicate in the digital realm.
Bitcoin’s counterweight in a debt-soaked world
Gold enjoys a legacy momentum. The precious metal has served as money for thousands of years and permeates every nook and cranny of monetary storytelling. This is in stark contrast with the novel Bitcoin, barely 16 years old, still struggling against perception and regulatory headwinds. Moreover, while retail investors do buy gold, its price is largely driven by institutional actors such as central banks, sovereign wealth funds, commercial banks, asset managers and hedge funds.
Conversely, Bitcoin started bottom up from enthusiastic cypherpunks with libertarian leanings:
- They kept mining and transacting BTC when it had little or no fiat value.
- They kept evangelizing through forums, conferences, and writings.
- They pushed the BTC narrative as a true monetary alternative after the 2008 financial crisis.
This cypherpunk-libertarian vanguard erected an entire digital economy, as Bitcoin birthed the altcoin sector. Suffice to say, their success has proven extraordinary, as evidenced by Bitcoin’s yearly returns.
However, as Bitcoin’s price kept rising, especially after the $100k milestone, a psychological barrier was erected for new investors. With a market cap of $2.28 trillion, it is no longer easy to move its price, which means outsized gains are no longer likely compared to prior years. Considering that gold enjoys greater institutional engagement compared to Bitcoin, it is easy to see why gold would outperform Bitcoin this year. Or would it?
There are multiple fundamental advantages of Bitcoin over gold:
- Bitcoin is both natively digital and physical, given that its proof-of-work network is secured by real assets: energy and mining machines.
- Bitcoin’s 21 million fixed scarcity is greater than gold’s pseudo-scarcity, with new veins discovered almost on a monthly basis.
- Bitcoin lacks the physical bottlenecks of mining and storage.
- As natively digital, it can be used more effectively as an anchor for the digital economy and across various blockchain networks.
Case in point, publicly traded companies have accumulated over 1 million BTC as part of their treasuries. Bitcoin not only serves as an inflation hedge but also as a way to expand companies’ financial flexibility, typically as collateral to raise funds.
So far, MicroStrategy (MSTR) has been the most successful in this effort, but this is likely only the beginning of the trend. In the long run, even if retail investors begin to favor cheaper altcoins, BTC’s yearly gains are likely to outpace gold because its market cap is only ~9.2% of gold’s.
Moreover, the vast majority of altcoins tend to lose value as new ones enter the market, whereas institutional Bitcoin inflows — beyond spot-traded ETFs — are only starting to accelerate, signaling a structural shift in adoption.
The bottom line
While gold’s 2025 outperformance may grab headlines, it largely reflects short-term institutional positioning, macro-driven flight from fiat debasement and the legacy momentum of a millennia-old asset.
Bitcoin, by contrast, embodies the long-term principles that gold can only approximate: absolute scarcity, borderless digital utility and an immutable decentralized ledger immune to political cycles. Moreover, its adoption is no longer limited to cypherpunks. Corporations and sophisticated investors increasingly recognize Bitcoin as both a treasury asset and a strategic hedge against fiat debasement.
Ultimately, as the digital economy expands and the limitations of gold’s physical supply become more apparent, Bitcoin’s relatively small market cap is not just to match, but eventually surpass gold’s long-term store-of-value performance as the more enduring form of money.
[Farhang Faraydoon Namdar edited this piece.]
The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.
The post Why is Gold Outperforming Bitcoin in 2025? appeared first on Fair Observer.
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