Gold versus bitcoin rhetoric is a distraction from the true economic discussion of our time
Bitcoin has long been heralded as digital gold.
Carlson Capital's Double Black Diamond Fund posted a return of 3.3% net of fees in August, according to a copy of the fund's letter, which ValueWalk has been able to review. Q3 2021 hedge fund letters, conferences and more Following this performance, for the year to the end of August, the fund has produced a Read More
“This is like better gold than gold,” said Gavin Andresen, who became lead engineer on Bitcoin after Satoshi Nakamoto, the pseudonymous founder of Bitcoin, handed over the reins.
Hal Finney, the first person to receive a bitcoin transaction, which was sent by Satoshi Nakamoto, compared bitcoin to gold, too.
“I see Bitcoin as ultimately becoming a reserve currency for banks, playing much the same role as gold did in the early days of banking,” Finney wrote on BitcoinTalk, the forum created by Nakamoto to discuss Bitcoin. “Banks could issue digital cash with greater anonymity and lighter weight, more efficient transactions.”
Gold versus bitcoin debate
Billionaire investor Peter Thiel, who said in 2018 he would bet on Bitcoin over all other cryptocurrencies, sees Bitcoin as a store of value, too. “I’m not talking about a new payments system,” Thiel said, adding that bitcoin is too cumbersome for that use case. “It’s like bars of gold in a vault that never move, and it’s a sort of hedge of sorts against the whole world going falling apart.”
Yet, if you spend time on Crypto Twitter, you’ve perhaps seen the contempt Bitcoiners hold for goldbugs...and vice versa.
“Bitcoin bugs claim that Bitcoin is superior to gold as a store of value,” as Euro Pacific Capital CEO Peter Schiff highlights. He and other gold bugs feel the same way about gold versus Bitcoin.
Schiff and Anthony Pompliano, a staunch proponent of Bitcoin and co-founder & Partner at Morgan Creek Digital, interminably debate on Twitter the virtues of their respective assets of choice.
Hodlers miss the point?
“Bitcoin is a more popular currency than gold is today,” tweets Pomp, who believes gold has a place in one’s portfolio.
“Bitcoin is up more this year than gold is in the last decade”
“Central banks bought more than $15 billion of gold in the first 6 months of the year.
They are trying to hedge their risk to the US dollar.
Wait till they find out about the non-correlated, asymmetric upside profile of Bitcoin.
Every central bank will be buying Bitcoin.”
Schiff, who believes Bitcoin can’t recreate the usability of gold in jewelry, electronics, et cetera, might riposte something along the lines of: “Unlike gold, Bitcoin has no value to store. Gold has worked great as money in the past, and will again in the future. Bitcoin never has.”
“Bitcoin has again failed the safe haven test. On Friday, as escalating trade tensions sent global stock markets plunging, investors sought refuge in monetary safe havens. The Japanese yen, Swiss franc, and especially gold all moved higher. Yet Bitcoin plunged by more than stocks!”
“Looks like the #Bitcoin pumpers are right about one thing. Bitcoin is indeed a non-correlated "asset." When investors are taking risk off, they are likely to sell Bitcoin. But when they are putting risk back on, they are just as likely to keep selling Bitcoin.”
These two are so entrenched, they’ve even made a $100,000 bet about which is the better asset.
Gold versus bitcoin and competing economic theories
If a Martian came to Earth, however, he or she might think gold and Bitcoin are, in fact, synergistic, not at odds. Proponents of both these assets are deeply suspicious of central banks, fiat currencies, and, in many cases, come from conservative, libertarian and Austrian economic pasts.
There is a fundamental difference between gold and Bitcoin, which suggests they are so totally different that comparing them is an exercise in futility, like comparing apples to oranges. The former has history, while the latter does not. Bitcoin is only eleven years old. Early Bitcoin developers cautioned about Bitcoin’s nascence and its experimental nature.
“From the start, I’ve always said the same thing: Bitcoin is an experiment and like all experiments, it can fail,” wrote early Bitcoin developer Mike Hearn, who once declared Bitcoin a failure, and left to code blockchain consortium R3’s Corda ledger. “So don’t invest what you can’t afford to lose. I’ve said this in interviews, on stage at conferences, and over email. So have other well known developers like Gavin Andresen and Jeff Garzik.”
In a portfolio of Bitcoin, gold and silver, therefore, Bitcoin (and other crypto assets) is an investment in which you don’t invest more than you are willing to lose, like the stock market, gold is your savings account, and silver is your cash. They’re synergistic.
Gold versus bitcoin? They are both economic hedges
In the big picture, the gold versus bitcoin debate is distracting us from an unfortunate economic truth of our time: that printing presses have devalued fiat currencies the world over. In 1926, U.S. federal government expenditures were $3 billion and there was a surplus, by fiscal year 1946 expenditures increased to $55 billion, and there was a deficit of $16 billion. By fiscal year 1978, expenditures skyrocketed to $451 billion, with the deficit at $49 billion. Government expenditures in 2019 were $4.45 trillion, and the deficit today is $804 billion.
The money stock increased during this time, as well. In 1947, there were $113 billion of demand deposits plus currency outside of banks. In August 1978, there was $357 billion. Today, that number is about $10.5 trillion. Increased money supply leads to increased consumer prices. In 1946, the consumer price index was 58.5 billion and in September 1978 it was 199.3. The CPI today is 254.950.
If any debate is to be had at all, therefore, it is not gold versus bitcoin, for this is a distraction from far more pressing problems. The debate is rather Keynesians, New Dealers, and, now, Modern Monetarists versus conservatives, libertarians, and other defenders of free enterprise, including the Austrian economics endorsed by gold and Bitcoin-bugs alike.
With the advent of Bitcoin and crypto assets, we enjoy the liberty to keep our money outside of dominant financial institutions. These two assets, therefore, should not be seen as competing with each other for market share, but, rather, as allies in the battle for financial choice.
About the Author
Justin O’Connell is the founder of Change Output, Gold Silver Bitcoin, and Cryptographic Asset. He has worked full-time in the blockchain industry since 2012, when he left the precious metals industry, helping to launch Genesis Coin, speaking at industry events, and publishing articles on CoinDesk, Bitcoin Magazine, CoinTelegraph, VICE, Forbes.com, and more.