Is Bitcoin Really “the New Gold”?
March 11, 2019 | Posted in Gold | By J. Hawthorne
Comments Off on Is Bitcoin Really “the New Gold”?
The Bitcoin is Gold Crew
Blockchain influencers, the media, and crypto enthusiasts love to compare Bitcoin with gold.
Gemini founders the Winklevoss twins in particular make this comparison often. Tyler has described Bitcoin as a better form of gold or “digital gold.”
[…] speaking in NY City on Feb 27, added his back up on the popular claim by many that the leading coin Bitcoin (BTC) is a digital form of gold. Both gold and bitcoin are scarce, he continued, fungible and divisible. But, he believes that bitcoin is better at being gold than gold is, since you can hold it in a single string of numbers making it much more portable.
Litecoin founder Charlie Lee is also known for drawing comparisons between gold and Bitcoin. He has also called his own cryptocurrency LTC “silver” and went so far to call XRP “diamonds.”
The famous developer commented that if he had to compare Bitcoin (BTC) with some commodity, in his opinion Bitcoin (BTC) is the closest thing to gold that exists in the crypto sphere.
Its massive adoption and the considerable increase in prices make it valuable digital storage for many people. This quality makes it perfect for accurate comparison with gold, being Bitcoin its digital equivalent:
“Bitcoin doesn’t need to face storage problems; it’s also very convenient to transfer. For me, he is better than gold in many places. If you are more optimistic, the market value of Bitcoin may be more than the 10 trillion market value of gold. More than 100 times the upside.” — Charlie Lee
Brave New Digital World
It’s true that we’ve entered an era in which cutting down on physical attachments in favor of the digital equivalent is seen as “better.”
Everyone’s music collection was once on vinyl records, tapes or CDs. Movies were on VHS, DVD, then Blu-ray before moving to pure digital form as well. And while some of us still prefer physical books, affordable tablets and the Kindle have ushered in the digital era for our reading material.
Our banks balances have long been displayed on computer monitors. So, the desire to digitize our holdings in precious metals seems like the next logical step.
A New Asset Class
Let’s get back to the big question. Is it fair to compare Bitcoin to gold?
Many of these comparisons are attempts by Bitcoin boosters to describe a totally new asset class in terms they feel the public can understand.
Bitcoin really could be compared with any commodity. They choose gold because it has historically commanded a high price and it is ingrained in the public consciousness as a symbol of wealth.
The truth is more complex.
Bitcoin creator Satoshi Nakamoto intended it to be a currency. It behaves like a (volatile) commodity or investment, and is bought, sold and held on to like a stock.
Bitcoin and cryptocurrency is a new asset class that has nothing to do with gold. And since gold has held its value relative to the currency since of dawn of civilization, Bitcoin will not replace gold either.
The Bitcoin is NOT Gold Crew
Sean Williams at The Motley Fool slammed the comparison in his article titled ‘For the Last Time, Bitcoin Isn’t the New Gold.’
The world’s largest cryptocurrency by market cap has also drawn regular comparisons to gold, which is viewed as the go-to investment anytime fear, volatility, and/or inflation rear their heads. This comparison takes shape given the relative scarcity of each asset. In other words, there’s a 21-million-coin limit on the number of bitcoin that can be mined, just as there’s a limit on the amount of gold that can be mined from our planet. Therefore, the assumption has been made that bitcoin can act as a store of value much in the same way gold has for investors.
However, I’m here to tell you, again, and for the last time, that you shouldn’t believe everything you hear about bitcoin. It isn’t, and will never be, the “new gold.”
Thijs Maas at Hacker Noon thoughtfully addressed the concept of Bitcoin as the new gold as well.
A lot of people believe that Bitcoin will serve as an effective hedge for economic uncertainty. Assertions like “Bitcoin is the new gold” have at some point appeared on the front-page of pretty much every financial outlet. And there is some truth in this statement. Bitcoin is definitely a great way to escape hyperinflation. It is also true that there is a relatively small correlation between Bitcoin’s price and the prices of mainstream asset categories. However, there is an important difference between gold and Bitcoin: Gold has intrinsic value. Bitcoin does not. A bitcoin costs around 4000 dollar now because we believe it costs 4000 dollars. If one day everybody decides that Bitcoin is worthless, it would be.
While it makes sense to compare Bitcoin with gold to market it, and provide clickbait to the pad the pockets of media outlets, we don’t need to choose one and throw out the other.
Bitcoin and gold are both investments worth considering. Bitcoin is convenient, fairly new and technologically exciting. Gold is still extremely small and lightweight in comparison to its value, and historically it’s the safer bet.
One Bitcoin could someday reach a value of $1 million as predicted by John McAfee, or it could fail and drop to zero. It’s highly risky, but the potential rewards are great.
Gold is just the opposite. It’s a safety net. Even if the entire financial system collapses gold will have value.
Photo: Steven Millstein