Posts

Why Bitcoin Is Eating Up Gold

avatar of @gandhibaba
25
@gandhibaba
·
·
0 views
·
3 min read

As a child, I remember being told the Biblical story of Moses and the magicians of Pharaoh, how the rod of Moses transformed into a snake and ate up the rod of the magicians of Pharaoh, which also had transformed into snakes. This appears to be what is taking place at the moment, Bitcoin is slowly eating up gold.

Dubbed digital gold, Bitcoin has over the years grown to become the most profitable asset in human history. From being worthless in its early days, Bitcoin is now regarded as a store of value in many circles. This is very similar to the status of gold, the oldest store of value. Although Bitcoin is still very far from being as widely acceptable as gold, many investors are already turning attention to Bitcoin as an hedge against inflation.
Before we look at why Bitcoin is gaining traction among investors as a preferable store of value, let us look at the meaning of a store of value. A store of value is essentially any commodity, tangible or intangible, that can be used to preserve wealth over a long period of time without losing much of its value. That is, any asset can only qualify as a good store of value if it doesn't depreciate in value.

Throughout human history, therefore, gold has emerged to be the best store of value, the reason being that it has a very low rate of inflation and rarely depreciate in value. Gold is also made up of chemical compositions that cannot be reproduced in a laboratory without mining. Until the emergence of Bitcoin, gold has played the role of the global store of value.

But things are changing now. More people are selling their gold holdings to buy Bitcoin, the digital gold. This is evident in the depleting market capitalization of gold even as Bitcoin witnesses a bull market. Therefore, why would any right-thinking investor want to give up an asset like gold, which has ensured several centuries of being a fantastic store of value, for Bitcoin which only came into the scene less than two decades ago? The answers will be provided in the paragraphs that follow.

To start with, while it is true that gold scare, it is infinite in supply. This means that more gold will be produced and can be produced as long as the needed labour and manpower are available. New gold can be minted forever, although at a much slower pace than other known assets on earth. However, Bitcoin has changed that. In his book, The Bitcoin Standard Saifedeen Ammous argued that Bitcoin does not only have a limited supply, it is the only asset in history that is finite. No amount of technology or man power can increase the supply of Bitcoin. This effectively makes it more valuable than gold. Hence, the switch by clever investors.

In addition, it is very difficult and costly to move gold across time and space. This simply means that you'll face a lot of difficulty and risk if you decide to move your physical gold deposit to another country. Contrarily, you can easily move Bitcoin across time and space without losing its place as a store of value. Literally, Bitcoin is gold in transit.

Lastly, Bitcoin is eating up gold because the latter has over the years come under the control of government. The government of the day can decide to confiscate gold and steal the wealth of the members of the story. But with the advent of Bitcoin, the members of the story now has full custody of their wealth, as it is securely put out of the reach of the government.

At the peak of the bull market in 2017, for instance, it took 14 ounces of gold to buy a single Bitcoin. Today, in less than four years, it now takes more than twice the ounces of gold that were needed in 2017 to buy a single Bitcoin. There is no denial that Bitcoin is gradually and slowly eating up gold. In the coming years, Bitcoin will surely overtake the market capitalization of gold, although both will still have to coexist, perhaps, for no other reason than the fact that gold is gold and Bitcoin is Bitcoin.

Posted Using LeoFinance Beta