﻿It seems like the sky is the limit when it comes to Bitcoin. The cryptocurrency reached milestone
after milestone in the last year and looks like it is finally leaving the fringes of the tech-savvy
young public to conquer the financial market. Many young investors are starting to consider Bitcoin
and other crypto coins as real alternatives to Gold, the oldest safe-haven investment in the
world. But does it make sense to treat them as an alternative to good old Gold? Let’s take a look.
It has been a hell of a ride for bitcoin owners. After so many records and high-profile
investments, it looks like cryptocurrency is finally breaking into the mainstream.
In October 2020, a team of analysts at the J.P. Morgan Global Markets Strategy group touted
Bitcoin as a gold alternative for millennials. It predicted that prices could double or triple
if the trend continued. It was a Friday, October 23rd. That day, Bitcoin was being sold for 13.1
thousand dollars. The J.P Morgan analysts` prediction was a turning
point for the bank. Only two years earlier the bank’s CEO called Bitcoin a fraud
and that he would fire anyone trading it for being stupid. Fast forward and here we are,
hearing from the analysts of the legendary bank that investing in Bitcoin was not that stupid.
Looking at the development of bitcoin since then, JP Morgan´s analysts prediction turned out to be
conservative. Bitcoin would double in price in two months, triple in January 2021 and by February,
after Elon Musk announced that Tesla invested $1.5 Billion in Bitcoin
and was planning to accept it as a form of payment, the cryptocurrency just skyrocketed.
But the good momentum was not only a result of a JPMorgan change of heart or Musks endorsement.
Crypto is slowly being accepted as a legit investment. Besides Musk,
other investors and CEOs are also betting on it.
In 2020, Paul Tudor Jones, a well-known Wall Street hedge fund manager, said he invested almost
2 percent of his portfolio in Bitcoin. Larry Fink of BlackRock, the world’s largest asset manager,
said in December that bitcoin could become a “global market”.
MicroStrategy, an American software company, announced in December 2020 that it bought 650
million dollars in bitcoin, totaling more than one billion dollars invested in the cryptocurrency.
Square, a financial payment company led by Twitter CEO Jack Dorsey, announced
in October that it was putting 50 million dollars of its corporate cash into Bitcoin.
PayPal also followed the trend and announced that it would allow people
to buy and hold Bitcoin as well as a few other cryptocurrencies.
There are endless examples of high-profile investors and companies pivoting in the Bitcoin
direction. To complete the wave of good news, the Office of the Comptroller of the Currency,
an American regulator, said in July 2020 that banks would
be allowed to hold cryptocurrencies for customers.
With so many milestones being achieved, some buyers are now treating the cryptocurrency
somewhat like gold. Billionaire Mark Cuban, for example, although not an enthusiast, declared in
December 2020 that Bitcoin is investable and “a store of value like gold that is more religious
than a solution to any problem”. Instead of trading in and out, investors are leaving their
money on it. Similar to gold, bitcoin became a way of keeping investments out of governments'
influence and the traditional financial market [13]. But can we compare Bitcoin to gold? To
answer this question, we need to understand both the differences and similarities between them.
The biggest similarity is that both are finite resources.
While gold is a mineral that is mined around the world, Bitcoins (or any other cryptocurrency)
are also produced by a process that is known as “mining”, but on the internet.
Gold production totaled 3,531 tonnes in 2019, 1% less than the year before. And although there is
no way to be sure, some estimates indicate that there is only about 20% of the total
amount of gold in the world still to be mined. Meanwhile, as of February 8th, there are 18,6
million bitcoins with the numbers changing every ten minutes, when new blocks are mined. Each new
block adds 6.25 coins into circulation. In total, only 21 million tokens will ever be created.
This means that more than 88% of available Bitcoin in the world has already been mined.
And we are fast approaching the finish line.
Another similarity resides in the fact that both gold and Bitcoin are assets that
have little or no correlation with other stocks or currencies. Monetary policies,
central banks or governments cannot directly control their value,
even if indirectly their action can have an impact on it. What matters to define prices
is supply and demand. On top of that, neither Bitcoin nor Gold, pay interest or dividends.
But while they share these common characteristics, one big thing differentiates these investments:
gold has an actual, physical value attached to it. Gold is valuable because of its historical,
commercial and cultural use as well as its anti-corrosive and conductive properties.
Bitcoin? Well, the enthusiasts might think this is not true, but scarcity in itself does not give
a thing value. Bitcoin’s value comes mainly from the expectation of the future and the
belief that eventually its use will be accepted and widespread, therefore increasing its cost.
Fact is: Bitcoin is still a speculative asset in a largely unregulated market. And using Bitcoin as
cash is not yet a natural process. People do not have the confidence undertaking large transactions
in bitcoin. Crypto in general is still far too inefficient to be of much use for making payments.
For example, Bitcoin is capable of processing fewer than ten transactions per second.
For every crisis or turbulence, investors know that traditional investments like
government bonds will not bring the expected results and pivot to gold.
They search for a real asset that cannot lose its value by relentless supply of money.
This is not yet the case with bitcoin. Its price is much more volatile and has
recently moved with the stock market, which is different from a supposed haven like gold.
On top of that, the cryptocurrency trade is a market where fraud and theft are rampant.
Crimes such as selling drugs online have been facilitated. And there were cases of even
terrorists using crypto. People have used tokens to bypass laws and capital controls. Countries
like North Korea, Venezuela and Iran have also used the cryptocurrency to evade American
sanctions. The Security Exchange Commission has sued blockchain payments company Ripple, accusing
them of selling unregistered securities after the company sold the cryptocurrency XRP to investors.
Owners of BitMEX, the world’s largest cryptocurrency trading exchange,
are facing criminal charges for allegedly using laundered money
and allowing other illegal transactions. Janet Yellen, US secretary of Treasure,
said that cryptocurrencies used for illicit purposes are a growing problem in the world.
Some investors still aren’t sure about what to do with the new phenomenon. As Mark Cuban summarized:
“A banana has more utility, potassium is a valuable nutrient to every person on the planet,
but as long as people accept bitcoin as a digital version of gold, it's investable”.
To invest in bitcoin, one needs to believe in the value of it. To be honest, this is also
true for other investments as well. But when it comes to stocks and bonds, for example, there
are legitimate mathematical models to determine their value. Stocks produce earnings and bonds
produce income. This is what determines their value. The same cannot be said about bitcoin.
It’s still an unanswered question of how a modern asset like crypto will fit into legal
structures dating back a century and how it can turn into a real safe haven. The progress
witnessed in the last years makes it easy to believe that these financial structures will
eventually adapt to the new model and crypto will be broadly accepted and easy to deal with.
And maybe even becoming a safe haven investment.
However, there is no guarantee that will happen.
Until then, comparing crypto and gold still seems like a matter of faith more than anything else.
So that’s it for this video. We hope you enjoyed learning more about the
differences and similarities between gold and bitcoin. Since you made it to the end,
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