Gold versus bitcoin debate makes further headlines as tech experts weigh in
Peter Thiel tells Saudi conference he believes bitcoinis underestimated and compares to gold
Steve Wozniak tells Money 20/20 that bitcoin is a better standard of value than gold and U.S. dollar
-Both men recognise that the US dollar has little value and there are worthy competitors to its crown as reserve currency
Gold continues to hold its value and has multiple uses, bitcoin remains volatile and difficult to use
Experts are pushing an unnecessary debate as gold and bitcoin state more about fiat than each other
Lords of the tech world Peter Thiel and Steve Wozniak are the latest to add fuel to the bitcoin versus gold debate.
At separate conferences both told audiences that they had great hopes for bitcoin, comparing it to gold. The co-founder of Paypal and the Apple co-founder both expressed views that suggest they believe the world’s biggest cryptocurrency is superior to the world’s oldest form of money.
Each of their comments demonstrated some ignorance when it came to how gold operates and also in howthey believe the two assets need to be considered competitors.
Their comments were really about the badly managed US dollar and how its time is limited. Yet as we have seen throughout the year, thoughts by experts return to bitcoin replacing gold rather thanbeing a statement on the pushback against fiat money tyranny.
Misinformed withmisdirection
At first Thiel’s comments were relatively positive towards gold and he showed that he understood why investors choose to invest in both assets:
[Bitcoin is] like a reserve form of money, it’s like gold and it’s just a store of value. If Bitcoin ends up being the cyber equivalent of gold, it has a great potential left.
But Thiel also believes it has more potential than gold due to a misinformed belief about mining differences:
So bitcoin is also, it’s mineable, like gold it’s hard to mine, it’s actually harder to mine than gold and so in that sense it’s more constrained,
Wozniak also had some interesting comments on how bitcoin and gold mining compared to one another:
There is a certain finite amount of bitcoin that can ever exist. Gold gets mined and mined and mined. Maybe there’s a finite amount of gold in the world, but Bitcoin is even more mathematical and regulated and nobody can change mathematics.
Wozniak@stevewozlikes bitcoin because it is based on mathematicspic.twitter.com/keanqCxf43
– Finom (@finom_company)22 October 2017
Wozniak then described the US dollar as kind of phony, while describing Bitcoin as more genuine and real.
All about the dollar
To cut to the chase what Wozniak and Thiel are really saying is not that bitcoin and gold are competing with one another but instead that they are better than the US dollar.
This should be the main takeaway the US dollar does have major problems. It has lost over 90% of its value, is controlled by one central bank and holds a huge amount of power over the rest of the world.
Things are so bad with the US dollar that the likes of Russia and China no longer want to hold it in reserve and are rapidly increasing their exposure to physical gold bullion.
This is where the crux of any debate should be, why is bitcoin so successful and can it follow in gold’s footsteps when it comes to holding its value and outperforming fiat currencies. The two assets are so dramatically different that there should be little airtime given to an either/or debate.
Instead finance and tech commentators should recognise that if managed successfully bitcoin could join gold in its role as an alternative and powerful currency that operates outside of centralised markets and the clutches of central banks.
Bitcoin versus gold is an unnecessary debate that distracts from the main issue: both history and new technology are now offering investors and savers great opportunities to save and spend outside of the fiat system.
Forced to choose for no reason
What is fascinating about comments made by the likes of Thiel and Wozniak is that they force investorsto believean unnecessary choice is necessary.
Why do investors have to choose between gold and bitcoin? It’s like saying you must choose between gold and silver or Apple and Amazon stock, there’s no need. You can invest in both.
Thiel and Wozniak’s comments do not add anything interesting to the discussion about the opportunities and risks of investing in bitcoin. Instead they merely add fuel to the headlines that ask if cryptos are ‘killing gold’ or if bitcoin is gold 2.0.
This line of thinking has been particularly popular this year as bitcoin has surged over $6000 whilst gold has climbed by 10%. There is no doubt that bitcoin has energised investors, especially those in the tech space and younger generations.
But because one asset is outperforming the other, does this make them substitute assets or should we consider them complementary?
Gold and bitcoin: Substitutes or complementary?
Both are clearly seen as safe havens: Take gold’s reaction when events such as North Korean sabre-rattling happen, or bitcoin’s reaction to the Catalonia crisis.
Both are decentralised:Neither asset relies on a central bank to manage supply, demand or price.
Both have limited supply: Gold and bitcoin are mined. Gold relies on physical mining, bitcoin is mined mathematically.
The above three reasons show there are clear similarities between the two assets. They are also the main reasons why people choose to invest in gold and/or bitcoin. But differences do remain, making bitcoin and gold ideal complementary assets whilst showing the precious metal to be the ultimate safe haven against fiat tyranny.
Gold is held by central banks, bitcoin is not. Currently the majority of central banks hold gold as part of their reserves.
The most recent example isRussia who added1.1 million ounces to reserveslastmonth in an ongoing diversification from USD. So far there is no evidence of central bank investment i