"No warning can save people determined to grow suddently rich" - Lord Overstone

  • 12 hours China’s $33 Trillion Finance Industry Opens To Foreign Investment
  • 13 hours Is Bitcoin Cash Overbought?
  • 14 hours Financial Sector Reports Record Profits
  • 15 hours Iran Bans Crypto Amid Currency Crisis
  • 16 hours Markets On Edge As Treasury Yields Spike
  • 17 hours Silver Pulls Back Following Breakout Week
  • 18 hours Wells Fargo Receives Record-Breaking $1 Billion Fine
  • 20 hours Market Sentiment Slips Ahead Of Tech Earning Reports
  • 1 day The Trillion Dollar Space Race
  • 2 days The FANG Stock Investors Should Avoid
  • 3 days Is This The Death Of The iPhone X?
  • 4 days Is London Still The Financial Capital Of The World?
  • 4 days Is Gold Staging A Comeback?
  • 4 days The $200 Million ‘Golden Parachute’ For Rupert Murdoch
  • 4 days Bitcoin’s Breakout Is Not As Bullish As it Seems
  • 4 days Farmers On Edge As Trade War Hits U.S. Grain Shipments
  • 4 days Is Silver Poised For A Massive Break Out?
  • 4 days Meet The Hedge Fund Billionaires Club
  • 5 days The Next Housing Crisis Could Be Right Around The Corner
  • 5 days Cartel's, Pirates And Corruption Cost Mexico $1.6 Billion Per Year
Will Blockchain Stocks Ever Bounce Back?

Will Blockchain Stocks Ever Bounce Back?

Blockchain stocks have been promoted…

Bitcoin’s Breakout Is Not As Bullish As it Seems

Bitcoin’s Breakout Is Not As Bullish As it Seems

Bitcoin has seen prices rally…

Arkadiusz Sieron

Arkadiusz Sieron

Arkadiusz Sieron is a certified Investment Adviser. He is a long-time precious metals market enthusiast, currently a Ph.D. candidate, dissertation on the redistributive effects of…

More Info

Will Bitcoin Ever Dethrone Gold?

BTC

John Maynard Keynes once famously called gold the “barbarous relic”. The emergence of cryptocurrencies seems to validate that thesis. Will gold survive in the digital era?

Bitcoin as Digital Gold

Let’s face it. Bitcoin and gold are similar. Both assets are rare, and their supply is limited (it cannot be increase at will by politicians or central bankers). Actually, Bitcoin was conceived as the digital gold from the very beginning – the process of generating bitcoins is called “mining”. And both Bitcoin (and cryptocurrencies in general) and gold are not government-issued media of exchange – instead, both are alternatives to fiat currencies.

According to Aswath Damodaran, a valuation guru, one scenario for Bitcoin is that it will become “gold for Millennials”, i.e. it will take the role that gold has fulfilled for hundreds of years – a safe-haven asset for people who don’t trust governments & central banks and their currencies.

But There Are Important Differences

Bitcoin’s parabolic rise at the end of 2017 prompted some analysts to claim that cryptocurrencies may replace gold. They forgot that Damodaran’s vision was only a one of possible scenarios for Bitcoin’s future. And they neglected several distinctions between gold and Bitcoin. The World Gold Council has recently published an investment update, arguing that cryptocurrencies are no substitute for gold. Their reasons are that gold:

• is less volatile;

• has a more liquid market;

• trades in an established regulatory framework;

• has a well understood role in an investment portfolio;

• has little overlap with cryptocurrencies on many sources of demand and supply

Bitcoin vs. Gold – Volatility

The Bitcoin’s enormous volatility is perhaps the biggest obstacle to replace gold. One function of money is to be a store of value such as the yellow metal – as Bitcoin moves, on average, 5 percent each day, it hardly serves as a viable medium of exchange. Actually, cryptocurrencies are much more held and used as a speculative investment rather than medium of exchange used for transactions. Gold is not money anymore, but it is definitely used as an inflation hedge and a store of value.

Bitcoin vs. Gold – Liquidity

Another important issue is market liquidity. Bitcoin trades, on average, $2 billon a day, which is is less than 1 percent of the total gold market that trades approximately $250 billion a day. Related: Why Crypto Millionaires Are Trading Over Skype

The modest Bitcoin’s liquidity is partially responsible for its huge volatility. We know that Bitcoin is still young, but the gold’s established role as a monetary asset will be very difficult to dethrone. People have a status quo bias – and there are network effects in operation. Actually, as there are currently over 1,400 cryptocurrencies available, the future of Bitcoin is under question – it has “first-mover advantage”, but we cannot exclude that it would be replaced itself by better cryptocurrency.

Conclusions

We often disagree with the World Gold Council, as it has a clear bullish bias toward gold. The shiny metal and Bitcoin have some similarities, but there are not substitutes, at least not perfect. It’s not that we don’t like cryptocurrencies – we keep our fingers crossed for all alternatives to the government-sponsored fiat money (especially that blockchain technology looks very promising).

But we are not blind to obvious differences. Gold has a long history of being monetary asset behind it and the gold market is well established, very liquid and relatively stable. Meanwhile, the cryptocurrency market is young, with small liquidity and high volatility. Investors buy Bitcoin and other alt-coins not as safe-havens, but rather as speculative vehicles. Hence, contrary to some commentators, the gold prices shouldn’t be affected by rallies and downturns in cryptocurrencies. Stay tuned!

By Arkadiusz Sieron via Sunshine Profits

More Top Reads From Safehaven.com:

Back to homepage

Leave a comment

Leave a comment