Goldbugs should be in love with Bitcoin
First, I must admit that there is a little envy in every true gold investor looking at crypto currencies performance in the past few years. We are waiting for the true bull run for decades and suddenly Bitcoin has gone exponential in just a few years with pure math and no need for digging a hole.
Many have called the cryptos bubble, and many will do it in the future. One does not need extra skills to recognize some basic patterns, but these patterns were seen in Bitcoin price behaviour several times during past few years and are common when we consider how revolutionary the idea is.
The good news for gold owners is that either Bitcoin crash or potential further exponential rise are positive events for precious metals. The first event will force crypto investors to find alternatives of which there are very few with the same fundamental quality. The second will document growing mistrust of public in the global financial system and so naturally support the only traditional form of money, gold.
Bitcoin is definitely a revolutionary idea and even though I predicted the Bitcoin correction correctly back in 2014, I was unable to understand the potential for this technology in current world context and society trends. Here is the full retrospective of my thinking back then— How Bitcoin changed my mind.
I have never invested in crypto currencies even though I considered them valuable and life changing technology for the future. I always felt with cryptos that the train has left long time ago and my contrarian nature doesn’t fit with jumping into exponential markets.
Nonetheless, there is no one who knows where are the limits for this early market. I am aware of few well reasoned predictions that Bitcoin will rise to $50,000 or even one million but no one really knows. We can make best predictions all day long and we would not be closer to truth.
I can understand that everyone holding Bitcoin is wishing for the price rise. The higher you bought the bigger conviction you need to hold on to it.
On the other side with gold bugs, I see a lot of confusion, denial and envy. Their inability to experience exponential rise compared to cryptos had proportionately strengthened their disbelief of further success in cryptocurrencies.
Many people holding gold search to find the comfort in philosophical games about intrinsic value, comparing energy investment, ease of replication, or infrastructure security. But to be honest, they are missing the reality of subjective valuations.
For example, Gold and Bitcoin are both energy derivates where the energy to create them partially defines the value. There is nothing special with gold where one needs to dig a hole compared to math calculations that need energy in the same way with Bitcoin. Even if there are energy derivates with slightly better properties found or invented in the near future, e.g. Platinum or Ethereum, they will not take over the place of gold or Bitcoin. They become rather substitutes. This is supported by empirical evidence and can be explained partially by the network effect and First-Mover advantage.
Lastly, making fun of cryptos because they need electricity is amusing for many gold advocates, even though one can easily argue that risk of gold confiscation would be of the same probability. Investing in gold rather than Bitcoin because it doesn’t need electricity is just absurd. Only if investing in horses rather than airliners because they don’t need fuel makes sense to you from investment standpoint.
One can get lost in absurd scenarios only for the fun of it. But markets hardly take them into consideration so they are of limited use. Both gold and Bitcoin have in essence the most important feature of eliminating counter party risk.
On the other hand crypto adopters often can’t accept even small probability that for the next few years $5000 Bitcoin may be the top of the market.
I personally have Bitcoin going to $0 with the same probability as it going to $1,000,000. Having open mind about all possibilities is crucial.
Bitcoin opened the skies for gold
Although I don’t plan to invest in Bitcoins at this time, I think investors in gold should at least see the positive side of crypto market development. They may finally see what will it look like for gold when people realize the global financial system cannot continue to live forever on enormous debt and money printing.
Many holding gold live in the world where they feel betrayed by manipulated markets or big banks influencing trading with high volume trades during low liquidity periods. Whatever the reasons, their ability to see the real powerful move in gold is vastly diminished today. They often like to talk about $10,000 gold, but I expect many of them would jump out around $5000 to cover the pain for years of waiting for a big move up.
Now seeing that non-tangible software innovation in currency space can go from $0 to $5000, I expect them to have strong hands when the gold moves higher. Every one of us would have at least one supporting factor that if it was possible for Bitcoin, then for sure it is possible for precious metals.
At the same time if the success of crypto market continues unabated, I would expect many new overnight crypto millionaires and billionaires to diversify into the only generally accepted form of money, gold. And if they do, they won’t go into gold backed cryptocurrency. They would go for owning the physical metal.
Concept of money
Above all Bitcoin got people thinking about the concept of currency and money. Got them thinking about value. Central banks are printing unlimited amount of fiat currencies. It is making people question the sustainability of the whole financial system. And in that process more and more people are going to find out that gold is much better than fiat currencies or even cryptocurrencies.
If both communities at least respect each other’s qualities, we may expect faster adoption and price appreciation in both precious metals and cryptocurrencies.