The recent parabolic rise in the Bitcoin price has created a stir in the investment market. Experts are divided on their opinions of the cryptocurrency, with some suggesting that it could be the ‘New Gold.’ Gold bugs around the world have been quick to denounce these claims, stating that Bitcoin is not backed by anything and therefore has no intrinsic value. Cryptocurrency enthusiasts argue that gold is an outdated asset that has had its heyday and will not be viewed as a legitimate form of currency ever again.
Both sides of the fence have compelling arguments, however, which one of them is more correct? Will Bitcoin and other crypto-assets become the future of money? Of will we experience a societal and financial collapse that forces us to revert to some form of a Bretton-Woods style gold standard again?
Gold as Money
Gold and other precious metals have been considered money for thousands of years. They represent the purest form of actual money and what gives gold its value is scarcity. No central bank can print the yellow metal, only debase it. This debasement was the cause for the fall of the Roman and Ancient Greek civilizations. They both corrupted their money supply to advance their war efforts. Eventually, the money ran out and the civilization crumbled to the ground.
Gold was considered money right up until the introduction of the Fiat Dollar standard and the end of the Bretton-Woods system in 1974. Previously, there had been a link between the U.S. Dollar and gold at a varying ratio. However, the need to continually fund the American war in Vietnam led to the need for the U.S. to print more Dollars to cover the cost of the war. By unshackling the dollar from the gold standard, the American government was able to embark on aggressive money printing programs to finance their war efforts.
The price of gold has always tracked this period of monetary expansion, and eventually, gold does the accounting for the financial system. Whenever the monetary base, i.e., Dollars, has been expanded, sooner or later, the gold price must rise to meet the inflation. This increase is the reason for the recent bull-run in gold from early 2000 to the peak of the bubble in 2013. As the U.S. expanded its balance sheet, the gold price rose to compensate.
It was during the later stages of the bubble that global banking cartels began to manipulate the gold price, preventing it from keeping track with the debasement of the Dollar. The banks buy and sell massive holdings of ETF gold paper. They pump and dump the market by meeting the desired pricing level which has floated around the $1200 to $1300 channel for the better part of the last decade.
It is this manipulation that prevents investors from hoarding physical gold and keeping it as a store of value. In a world where starved investors search for yield, purchasing gold does not seem like it is worth the effort.
Bitcoin as Money
Founded in 2008 by Nakamoto Satoshi, the Bitcoin code white paper gave the world its first initial introduction to cryptocurrency.
Over the next three years, developers jumped on board to enhance the system and began to create large mining server farms to mine the cryptocurrency algorithm. While Bitcoin does not have many years under its belt, it is fast becoming a popular form of currency due to its acceptance in the global marketplace as a legitimate form of currency to buy goods and services.
More retailers are accepting Bitcoin for payment, and it is this drive in money velocity that now sees daily trading volumes in Bitcoin exceed the $4 billion mark. One of the drawbacks to Bitcoin is the somewhat confusing nature of understanding the Block chain and wallet encryption, which can leave a novice feeling like they were just in school, learning about PMP certification training.
Bitcoin is money that it is being accepted and used as currency by more people with every passing day. Bitcoin also offers no third party involved in the transaction, and complete anonymity for the owner of the token, a similar property, and characteristic of gold.
Bitcoin and gold both have their unique monetary aspects. Discounting one against the other seems pointless as both have advantages over the current fiat money system. The prudent decision any investor can make is to make their own decision based on sound advice and then allocate their wealth accordingly. Both gold and Bitcoin belong in the asset portfolios of investors and the public, how much exposure you choose to take on, is an individual choice.
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