Are we nearly there yet? Gold on the blockchain.
In the last few weeks there have been significant developments in the world of gold, digital gold, blockchain and bitcoin. Those who have expressed an interest in gold investment, may have received articles from friends and family about how bitcoin prices reached parity with the yellow metal.
We have long argued that bitcoin and gold should be seen as complementary assets. But not everyone agrees and it doesn’t make a good story. Given bitcoin was first touted, and still is by some, as ‘digital gold’ or ‘as good as gold, but better’ then it has been inevitable that each time there is a significant movement in the bitcoin price then the media starts once again to pitch them against one another in a simplistic ‘cash of the currency titans’ narrative.
Below, we ask if there should be all this hype when a digital currency reaches parity with gold, and what this means for blockchain products such as the Royal Mint’s RMG or OzcoinGold which is purporting to be the first gold-backed cryptocurrency – fyi – there have been many attempts.
Ultimately it comes down to investing in and legally own a piece of gold that will serve your portfolio in the same way it has served millions of people in years gone by – as an asset that is a form of financial insurance, that cannot be devalued by central banks and will not be confiscated whether through bail-ins or more forceful means.
If using gold, blockchain and bitcoin together means that investors’ portfolios can meet the above criteria then we are on the dawn of something very exciting, but as you will see from the below, we don’t believe that we are quite there yet.
One bitcoin or an ounce of gold?
Let’s first address why bitcoin exceeding the gold price is or isn’t a big deal.
Lots of things cost more than an ounce of gold, the handbag I am pining for, a night at the seven-star Burj Al Arab or a gold MacBook Pro. So what? You might ask. Exactly, if lots of things cost more than a lump of gold, then why all the fuss about a bitcoin?
Especially when most of the people making a fuss couldn’t really tell you what a bitcoin is, and no one really knows how to trade using this information.
Whilst we can argue that the bitcoin price superseding the gold price is arbitrary, we can’t deny that this it is significant psychologically.
As noted above, bitcoin is often hailed as a form of digital gold, one that is perhaps more convenient and up-to-date with this technological world. Whether you agree or not, many people do hold this opinion and it is one that is widely reported on, hence the psychological importance of this price move.
There are many naysayers in the world of bitcoin and gold. Some would class them as two separate asset class, to them gold is a commodity and bitcoin is a technology. It still takes a lot of persuasion to the mainstream that both are currencies and that both manage to be so without the control of central banks, monetary policy and borders to restrict them.
This is why it is exciting when they reach parity or bitcoin exceeds gold. It means that more of the world is waking up to the issues with fiat money. It does not mean that bitcoin is better than gold nor does it mean that the world has flipped on its head and more people would rather own a bitcoin than hold a piece of gold.
The gold market is still worth more than 300 times that of the 16.2 million bitcoins in circulation. And if you consider the size of the $20 billion bitcoin market next to the Facebook, Amazon, Netflix and Google (FANGs) of the world then you’re not looking at something that is about to turn the world upside down.
Bitcoin is also incredibly volatile, despite calming down in recent years, and can still react like a hormonal teenager to a government announcement or ruling.
Just this weekend, bitcoin collapsed 18% after the U.S. regulator, the Securities and Exchange Commission (SEC), rejected a proposal by the Winklevoss twins for a publicly traded fund based on the digital currency. As Bloomberg put it, this dashed “hopes that a government-approved investment vehicle would lead to wider interest in virtual money.”
This volatility is likely to be the biggest barrier to it gaining the widespread adoption that gold already has – especially in the Asian world.
