Is Bitcoin blowing away gold?

See the latest Australian dollar analysis here:

Australian dollar firms above 77 cents as Bitcoin goes nuts

Lot’s of excitement over this:

As I have noted many times, BTC and gold share an investment narrative insofar as both are seen as hedges against USD debasement. Some have recently been plumping for BTC to overtake gold. Has it?

The answer is no and, for what’s it’s worth, I don’t think it will. BTC is a more volatile version of gold so when modulations take both one way then BTC amplifies gold’s moves.

I still wouldn’t buy BTC. Its regulatory risk is enormous and I will never get my head around the idea that something so ephemeral and artificial could possibly be considered a safe haven. Especially versus something so obviously the opposite in gold. Perhaps I’m just a reactionary GenXer.

But I must a creeping admiration for BTC these days. The anarchistic spirit that underlies the experiment is a worthy sentiment even if it is most likely doomed in the long run.

David Llewellyn-Smith
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Comments

    • All you are “buying” when you buy a bitcoin is a number that some energy-sucking algorithm has generated. Nothing more. You actually have …. nothing.

      And there are thousands of similar algos generating equivalent numberwang “coins”. Tulipcoins.

      This is the clearest example of the madness of crowds I have ever seen.

      • You could run the entire years worth of Bitcoin transactions on your home laptop in about 20 days. Instead you have the equivalent of Switzerland’s electricity consumption put towards securing it. That’s how much energy is required for a thrustless transfer of value between two parties.

        It’s that energy and compute power required to create thrustless value transfer. Hence why you can’t just create a new coin and expect it to be adopted. Hence why all of the initial forks of bitcoin ultimately fell away from 2017 – 2018.

        Same argument applies to setting up a Google or Facebook knock off. Easy to code, impossible to replicate the network effects.

        Even if you can’t fully comprehend it, it’s definitely worth having a risk % in it. If the upside is as big as it potentially is, then you supercharge your portfolio results. And if it’s worthless then you take a small hit.

        Current marketcap of BTC is $287B. Just over 2% of golds marketcap. That’s a rounding error at the moment. Pretty good for a asset class with no marketing department.

        Ian

        • Agree. The downside is known and relatively small (but getting bigger). The upside is potentially huge. It is a simple risk/reward issue. All money is ultimately a confidence game, even gold.

          • No, gold is not a ‘confidence game’. It’s been around since the beginning of the universe and will still be here billions of years after humans become extinct.

            However, a cybercoin that generates vast quantities of greenhouse gasses (GHGs) in its production, in a world heading towards utter climate disaster, in a world where anything that spews GHGs is going to be severely curtailed and/or BANNED, is fool’s gold.

          • Revert2mean, I understand but respectfully disagree. Gold has all these qualities but is only valued because people have confidence in it, and for good reason – rare, stable, transportable, divisible. It has no inherent value apart from looking pretty.

          • Gold has all these qualities but is only valued because people have confidence in it, and for good reason – rare, stable, transportable, divisible. It has no inherent value apart from looking pretty.

            To be fair it has some useful industrial applications, but the value of these is utterly dwarfed by its arbitrary value as a rare rock.

          • It’s not a rock, it’s a metal that mankind has valued since it was first discovered. Even today banks keep large quantities of it. I wonder why?

          • PolarBearMEMBER

            I’ll just add some physics to the debate. R2M is almost right. Gold’s been around since the first planets were formed in the universe. The gold in our earth was produced by nuclear fusion in the first stars, which reached the end of their lifespan, exploded all their heavy elements out into space which then coalesced via gravity to form the first solar systems with planets. Other interesting aspects of the gold are that it doesn’t corrode, it’s an element so it’s unproducible and indestructible (except inside stars – or currently uneconomic nuclear reactions). To me this is the perfect candidate for a currency – rare, doesn’t corrode, unproducible (except by mining) and indestructible. Sure bitcoin is much easier to use, but it can’t match gold on being a fundamental part of the universe. Which one is the safe haven?

          • It’s not a rock, it’s a metal that mankind has valued since it was first discovered. Even today banks keep large quantities of it. I wonder why?

            Because a whole bunch of people have assigned arbitrary value to it.

            Setting aside its industrial uses, which it is fair to say nobody is hoarding it for, and all you have is… a pretty rockmetal

          • PolarBearMEMBER

            @smithy, “all you have is a pretty metal”, that is very rare, is almost indestructible and cannot be created economically except inside stars. There’s it’s value as a safe haven currency.

      • This is the clearest example of the madness of crowds I have ever seen.

        I hear you. But what if you’re wrong?

          • Haywood JablomyMEMBER

            I have big reservations about both Bitcoin and gold. Though for the costs involved in finding and processing it, at least gold leaves you with something tangible that is coveted as more than just another investment class.

            But can your concerns about the environmental destruction attached to Bitcoin production not also be applied, with differences, to gold exploration/production?

          • 5,000 years as money is right.

            How many years has the gold market had it value determined by the derivatives markets trading 100x the physical market?

  1. The real value of BTC is the fact that it exists outside the payments system so the Feds can’t monitor it. Also, it is easily transportable across borders in a way that gold isn’t (up your bum can’t be all that comfortable). And it’s the ‘original’ crypto, like Afterpay is the original BNPL.

    The longer it lasts the longer its likely to last — but yes, the Feds haven’t yet made a concerted effort to come after it yet and that will be the test.

    Gold has 5,000 years of history behind and its luster has never faded. BTC 10years?

    • Stewie GriffinMEMBER

      BTC is also reliant on global server farms for delivering the majority of their hash, which are mainly corporate and that exist within an increasing global legal AML framework.

      If the US and China got serious they could shut those server farms down over night – it would take about 10,000 years for the remaining nodes run out of basement dwellers Raspberry Pi’s to produce enough to work through to the next difficulty adjustment.

      It is a fallacy that BTC can operate outside of the legal framework or avoid a determined Govt response – adhering to existing laws and regulations is the only way that a crypto currency can survive. The Liberty Dollar was started in 1998 and ran until it was completely shut down through a co-ordinated international AML operation in 2007, nearly 10 years.

      There have been some radical changes to BTC with things like the introduction of the lightening network, etc that have radically changed BTC’s compliance profile in terms of traceability (real physical cash for example all has serial numbers – it can and is still traced). The anonymising features that have been introduced to BTC are a serious problem for it long term imho (same with the privacy coins)

      Regulators move slow, but they eventually catch up and will win every time. Any crypto that intends on sticking around has to make AML and CTF compliance a priority.

      • I think you missed the point.

        10yrs vs 5,000 yrs.

        One swallow doesn’t make a summer, as the old saying goes 😉

      • Any threat (or perceived threat) will be ‘addressed’ by the Feds — that you can guarantee. It certainly provides an interesting sovereignty question though as there will be numerous holders of BTC in a wide variety of jurisdictions so what action can the US authorities take as it pertains to BTC in wallets held by overseas owners …. and so on.

        • Stewie GriffinMEMBER

          Agreed – but the idea that BTC is soveriegn and can’t be seized is something that I think is incorrect. Most of the #hash is delievered by corporate server farms, and although China and the US disagree on many fronts, their skepticism and wariness of BTC and the threats it poses is aligned.

  2. TheLambKingMEMBER

    I am a big fan of Van Tharp (Trade Your Way to Financial Freedom) and his view that you have ‘plays’ for different market conditions (volatile or not, is the direction up/down/sideways etc). My ‘play’ for financial turmoil has been gold derivatives. BitCoin looks like it could be the same ‘play’. ‘Is BTC a replacement for Gold?’ is not the right question – as while enough people believe it then it will make a valid ‘play’ in the right market conditions.

  3. I still wouldn’t buy BTC.

    Yes, but others will.
    In trading, you need to understand what the crowd values, not what you personally like.

  4. “But I must a creeping admiration for BTC these days. The anarchistic spirit that underlies the experiment is a worthy sentiment even if it is most likely doomed in the long run.”

    I have hope for you DLS.

  5. The old Barter Card business have reinvented themselves thanks to a coin called Qoin.
    Interesting local take on a crypto that has immediate transaction ability, within the BarterCard/Qoin network of businesses and consumers. Its kinda like a VPN you can currently use for buying and selling within the network. VPN characteristics

  6. Gold is great and most understand this.
    Bitcoin will reward those that do their own research with an open mind. Few understand this.