– Gold versus Bitcoin: The pro-gold argument takes shape
– Why cryptocurrencies will not replace gold as a store of value
– Similarities between crypto and gold but that does not make them substitutes
– Gold remains a highly liquid market, cryptocurrencies continue to be fragmented and difficult to spend
– Bitcoin does not make it an effective hedge against stocks
This weekend saw bitcoin shoot up over $8,000 and Bloomberg covered how some preppers were turning to bitcoin over gold. Does this mean it’s all over for gold? Is it set to be supplanted as a safe haven by crypto currencies?
Hardly. People read such information and continue to believe that gold and cryptocurrencies are substitute assets. They are not. So why are they so often pitched against one another?
Bitcoin and its contemporaries clearly have a role to play, the volume of demand demonstrates this and the technology is powerful. But, that role is not as a replacement for gold as a store of value.
Risk Hedge sums it up saying:
“Despite what the crypto-evangelists will tell you, digital tokens will never and can never replace gold as your financial hedge.”
Risk Hedge provided a great summary of the major flaws and differences in the gold versus crypto debate and the six reasons are listed below.
#1: Cryptocurrencies Are More Similar to a Fiat Money System Than You Think.
The definition of “fiat money” is a currency that is legal tender but not backed by a physical commodity.
Since the United States abandoned the gold standard in the 1970s, this has been the case with all major currencies, including the US dollar.
Ever since then, US money supply has kept increasing, and so has the national debt. In contrast, the dollar’s purchasing power has been on the decline.
Take a look at this historical gold price chart.
The huge spike in gold prices started right around the time when the Bretton Woods agreement collapsed in 1971 and US paper dollars couldn’t be converted to gold anymore. A clear sign of the decline in the dollar’s purchasing power since the move into a pure fiat money system.
It’s clear that cryptocurrencies partially fit the definition of fiat money. They may not be legal tender yet, but they’re also not backed by any sort of physical commodity. And while total supply is artificially constrained, that constraint is just… well, artificial.
You can’t compare that to the physical constraint on gold’s supply.
Some countries are also exploring the idea of introducing government-backed cryptocurrencies, which would take them one step closer toward fiat-currency status.
As Russia, India, and Estonia are considering their own digital money, Dubai has already taken it one step further. In September, the kingdom announced that it has signed a deal to launch its own blockchain-based currency known as emCash.
So ask yourself, how can you effectively hedge against a fiat money system with another type of fiat money?
#2: Gold Has Always Had and Will Always Have an Accessible Liquid Market.
An asset is only valuable if other people are willing to trade it in return for goods, services, or other assets.
Gold is one of the most liquid assets in existence. You can convert it into cash on the spot, and its value is not bound by national borders. Gold is gold-anywhere you travel in the world, you can exchange gold for whatever the local currency is.
The same cannot be said about cryptocurrencies. While they’re being accepted in more and more places, broad, mainstream acceptance is still a long way off.
What makes gold so liquid is the immense size of
