Advertise | Bookmark | Contact Us | E-Mail List |  | Update Page | UraniumSeek.com 

Commentary : Gold Review : Markets : News Wire : Quotes : Silver : Stocks - Main Page 

 GoldSeek.com >> News >> Story  Disclaimer 
 
Latest Headlines

Gold Seeker Closing Report: Gold and Silver Edge Lower Again
By: Chris Mullen, Gold Seeker Report

GoldSeek Radio Nugget: President Niko Cacos, CEO, and Director of Blue Sky Uranium Corp. and Chris Waltzek
By: radio.GoldSeek.com

Ira Epstein's Metals Video 10 17 2018
By: Ira Epstein

Gold price steadies and rises as BIS intervention diminishes
By: Robert Lambourne

Take a Peek at What the Top 1 Percent Have in Savings
By: Frank Holmes

Why Conflicted Copper Shows Little Consensus
By: Mickey Fulp

Investor Alert: Is the Trump Agenda in Peril?
By: Stefan Gleason

One More Thing To Worry About, Saudi Edition
By: John Rubino

The Golden Implications of Total U.S. Deficits, Debt and Debt Service
By: Craig Hemke

Determining the Outlook for Mining Stocks? Look Deeper Than Others.
By: Przemyslaw Radomski, CFA

 
Search

GoldSeek Web

 
Is Bitcoin Substitute for Gold?


 -- Published: Wednesday, 4 April 2018 | Print  | Disqus 

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!

Thank you.

 

Arkadiusz Sieron

Sunshine Profits - Free Gold Analysis

 


| Digg This Article
 -- Published: Wednesday, 4 April 2018 | E-Mail  | Print  | Source: GoldSeek.com

comments powered by Disqus



 



Increase Text SizeDecrease Text SizeE-mail Link of Current PagePrinter Friendly PageReturn to GoldSeek.com

 news.goldseek.com >> Story

E-mail Page  | Print  | Disclaimer 


© 1995 - 2018



GoldSeek.com Supports Kiva.org

© GoldSeek.com, Gold Seek LLC

The content on this site is protected by U.S. and international copyright laws and is the property of GoldSeek.com and/or the providers of the content under license. By "content" we mean any information, mode of expression, or other materials and services found on GoldSeek.com. This includes editorials, news, our writings, graphics, and any and all other features found on the site. Please contact us for any further information.

Live GoldSeek Visitor Map | Disclaimer

The views contained here may not represent the views of GoldSeek.com, its affiliates or advertisers. GoldSeek.com makes no representation, warranty or guarantee as to the accuracy or completeness of the information (including news, editorials, prices, statistics, analyses and the like) provided through its service. Any copying, reproduction and/or redistribution of any of the documents, data, content or materials contained on or within this website, without the express written consent of GoldSeek.com, is strictly prohibited. In no event shall GoldSeek.com or its affiliates be liable to any person for any decision made or action taken in reliance upon the information provided herein.