The Battle between Gold and Bitcoin

It once was the Gold Standard.

Throughout the 19th century, a form of commodity-backed money where paper notes were redeemable for gold was the normal, “standard” monetary policy. For over one hundred years of its existence the USD, which by the 20th Century had replaced the pound sterling (GBP) as the most important reserve currency in the world, has been a fully metal-backed currency.

Nowadays there are no currencies in the world that are backed by Gold and are indeed sovereign currencies denominated in fiat money.

Saifedean Ammous was the first to coin the phrase “The Bitcoin Standard” in his popular book by the same name. Are we entering that phase or at least are we getting close to the mass adoption of a tech-backed digital currency that could shape the future of our monetary policy worldwide?

In the last couple of days, Greyscale, a crypto asset management company, launched a global campaign calling all investors to ditch gold and buy Bitcoin (BTC) instead. Why? Gold has always been and still is a good asset, a great store of value, but we are in the digital era now, we have started to build trust via technology, and we can embrace a monetary system that is a new great store of value.

In ten years, Bitcoin went from “basically nothing” to nearly $20K, and it’s now in the range of $5.5k, establishing a phenomenal rise of 550.00% from its birth and around 50% up from the beginning of this year. It represents a perfect medium of exchange as it is durable, easy to carry and transfer, divisible in satoshis (sats), interchangeable, and not counterfeitable, meaning that it cannot be faked like paper money.

What is holding it from becoming a mass-adopted currency worldwide is its value as a unit of account. Yes, you can buy services and goods with bitcoin, but this is not the norm as yet. Volatility and people preferring to hold onto their bitcoins rather than fiat money are mostly the reasons why it’s slow to become a fully recognized, widespread currency.

Campaigns like the Greyscale creation though might have an impact on its adoption. On 1st May they also launched the website dropgold.com, and Barry Silbert, CEO of the fund’s parent company DCG tweeted that the battle between gold and bitcoin is on. He’s one of the leading promoters of the campaign and said he came up with the idea, hoping to target the older generation in particular. The message is clear: Gold is good, but Bitcoin is better. Sure, the company is biased as it promotes and sells the Bitcoin Trust but how far it is from reality?

Of course, the World Gold Council (WGC) could not let it go and soon Adam Perlaky, Manager of Investment Research for the WGC hit back at Grayscale by explaining that “although cryptocurrencies and blockchain technology look promising as a whole, they clearly do not represent a substitute for gold either in theory or in practice.”

According to Perlaky, Gold is better because is less volatile, has a more liquid market, trades in an established regulatory framework, and for these reasons, it should be in any investment portfolio before cryptocurrencies.

Does it make sense to compare assets that have a different lifetime though? Ten versus one-hundred years might explain why all of the above is not yet applied to the major cryptocurrency.

In the meantime, gold is experiencing a drop in value while Bitcoin has just reached an all-time high from the start of 2019. Everybody can draw their own conclusions.