Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Is Bitcoin a Substitute for Gold?

Currencies / Bitcoin Apr 04, 2018 - 06:41 PM GMT

By: Arkadiusz_Sieron

Currencies

John Maynard Keynes once famously called gold the “barbarous relic”. The emergence of the 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 Millenials”, 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. 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!

If you enjoyed the above analysis and would you like to know more about the gold ETFs and their impact on gold price, we invite you to read the April Market Overview report. If you're interested in the detailed price analysis and price projections with targets, we invite you to sign up for our Gold & Silver Trading Alerts . If you're not ready to subscribe at this time, we invite you to sign up for our gold newsletter and stay up-to-date with our latest free articles. It's free and you can unsubscribe anytime.

Arkadiusz Sieron
Sunshine Profits‘ Market Overview Editor

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Arkadiusz Sieron Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in