Bitcoin [BTC]: All that glitters is not gold; can the digital equivalent oust the real thing?

Bitcoin [BTC]: All that glitters is not gold; can the digital equivalent oust the real thing?

With bitcoin and the larger cryptocurrency community pushing the boundaries against the traditional financial realm, one of the main assets to feel the pinch is the prime commodity Gold. Often touted as the digital equivalent of gold, bitcoin has seen a slew of real-world adoption and in its race against gold, has proven to be a valuable investment vehicle for retail investors and hedge funds alike.

It’s no secret that bitcoin is often seen as the digital equivalent of gold, not because of its aura as a shimmering gold coin, but rather the similarities between the assets. Leaving aside the many uses that gold embodies by virtue of being a metal, from being a conductor for electricity to finding its way as a tooth in 70s mafia villains, gold has always been seen from the guise of an investment, and a safe one by most.

The intangible asset that is bitcoin, which recently broken the $100 billion market capitalization mark, is viewed in similar terms to gold, owing to its original value as a method of payment being chided for its more lucrative drive to be a volatile investment vehicle, at least, that’s how traditional investors look at the top cryptocurrency.

Bitwise Asset Management, in their report to the SEC, stated about bitcoin:

“bitcoin is the first digital commodity in the history of the world.”

The report further specified three points which point to a sea of differences between the king coin and other commodities in the market. Firstly, bitcoin is fungible, there are no varieties of the coin differing in purity, as one would see with oil or gold. Secondly, being digitally rendered, bitcoin is transportable and can be sent anywhere, at any time, between any parties. Lastly, bitcoin can be traded directly via an exchange and does not require an intermediary, hence it allows for “open price discovery”.

THE BEGINNING

On the basis of this initial literature between the two financial assets, the gold versus bitcoin tussle took a wild turn this week. Grayscale Investment Group, a crypto-centric asset management firm launched their #DropGold campaign with a scathing TV commercial calling out gold, claiming that it is an asset of the past and stating that it has no “utility”.

The #DropGold campaign has since picked up a head of steam, especially coupled with the two feuding assets’ performance in the past few months. Gold is down by around 6 percent since February, while bitcoin has grown by over 40 percent since March. Furthermore, analysts have also pointed out that the two assets are inversely correlated, with the 90-day correlation coefficient between the two is the lowest since March.

THE BACKLASH

A day after the Grayscale campaign took social media by storm, the World Gold Council hit back via a report from Adam Perlaky, the Manager of Investment Research at WGC. Perlaky, from the outset, stated that cryptocurrencies were “not a safe haven” and in no way, a “substitute for gold”. He highlighted the volatility, lack of regulation, speculative demand, a finite supply of bitcoin, although, Perlaky contends,

“However, there is nothing to prevent an enhanced cryptocurrency from being launched, devaluing those already in existence.”

THE BACKERS

Since the campaign aired, many proponents on both sides of the aisle joined in with their opposing opinions. One main gold proponent that hit back at the #DropGold campaign was Peter Schiff, the founder and chairman at SchiffGold, a precious metal dealing firm based in Manhattan.

Schiff stated that gold has a slew of utilities, which bitcoin proponents plainly “deny”. He contends that bitcoin does not have any utility, while the utility in the case of the yellow metal is “obvious”. His tweet stated:

“The ultimate irony in the #DropGold campaign, is that you can’t mine bitcoin without using #gold. This is just one of the many utilities of gold that bitcoin promoters deny exist. But while they overlook gold’s obvious utility, they ascribe utility to bitcoin where none exists!”

He further added that cryptocurrency buyers were “young”, “inexperienced”, and “foolish”. bitcoin, in Schiff’s opinion, has no value, and hence, it’s ‘store of value’ nature serves no purpose. Even though bitcoin was created to be an independent, uncontrollable store of wealth, free from government tyranny, Schiff labels this a “function of coincidence, which could be lost at any time”.

Several cryptocurrency proponents, including Shapeshift’s Erik Voorhees and Bitrefill’s John Carvalho, replied to Schiff’s criticism of bitcoin’s utility. Carvalho claimed he was confident that “bitcoin will eat away gold’s value over time”. He concluded referencing the initiator for this recent episode of digital gold versus gold, stating,

“Thus the #dropgold campaign is entirely appropriate and illustrative of this transition.”

With bitcoin pegged on entering its prime in the next few months and with all signs pointing to a bull-run on the horizon, the case for gold as a competitor looks shaky. That being said, bitcoin has been the most unstable financial asset in recent times, responding violently to everything from scams to regulations, leading to multi-billion dollar movements, decreasing confidence in its capabilities to compete with the stable gold.

Hence, the case still remains, can bitcoin and it’s principled stance as a ubiquitous, universal, censorship-resistant method of payment and store of value surmount the relatively stable commodity that is gold, or will the real thing oust its digital counterpart?

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Published at Mon, 06 May 2019 04:34:01 +0000