bitcoin

Will Bitcoin Replace Gold?

Mar-03-2014

- By adam @bigterminal.com
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Bitcoin and Gold are not so different and in many respects are substitutes. Proponents of both use similar language and share a common enemy in the USD Index and government banking cronyism.

fred-wilson

- Fred Wilson
…we are losing trust over time in our institutions, our banks, our governments…they can’t fuck us over anymore

Official Holdings

Bitcoin and gold both thrive off central banking’s monetary failures but do differ in some respects. A full quarter, 25% of the 174.1M/t gold supply is in the hands of central banks, sovereign wealth funds and fiscal coffers. Comparatively, Federal government holdings of bitcoin are unknown, but some bitcoin purchases have been made by federal agencies to conduct investigations of bitcoin merchants. As of now, the federal government is in possession of wallets amounting to at least 1.4% of the current outstanding Bitcoin Supply , most notably seized from Silk Road founder Dread Pirate Roberts aka Ross William Ulbricht.

Seized wallet containing 29,658.54 bitcoins

1F1tAaz5x1HUXrCNLbtMDqcw6o5GNn4xqX

Seized wallet containing 144,341.53 bitcoins

1FfmbHfnpaZjKFvyi1okTjJJusN455paPH

Stable Money Supply

Bitcoin and gold both have relatively stable and predictable supplies. The increases at an average of about 5% per year and, save a few gold rushes, has had a stable output over its 6,000 year mining history. Bitcoin currently are created at 25 coins per blockiA block is a set of transactions that are validated against the entire transaction chain before being appended to the chain. solved, with the difficulty of solutions automatically adjusting to ensure no more than six blocks per hour can be solved.

The difficulty in procuring metals and bitcoin set them apart from fiat currency whose scarcity is only limited by the discretion of the monetary policy board. For example, Base Money has tripled in the last few years and broad measures of money now are in the 100s of trillions.

Inflation Hedge, Forced Speculation

Given stable supplies and structural monetary demand both bitcoin and gold theoretically serve well as inflation hedges. Bitcoin, compared to gold, is early in its lifespan and has much less liquid, stable market development, though this deficiency is slowly being overcome and could take big leaps forward in coming years.

Given that all central banks are engaged in some form of debasement, an effort to woo investors into speculation, alternative savings mechanisms become highly valued.

Black Market Demand

Its no secret that bitcoin is highly used to evade traditional banking regulations but this is a role gold has also played over the years. Countries such as Iran have turned to gold to barter their oil for as a means of evading international sanctions. Bitcoin provides a similar means of circumventing many financial regulations as over the counter cash or gold but has the added benefit of being digitally transmittable. One of the great gold benefits through history was the high value to weight gold demanded which allowed for it to be easily transported. With bitcoins becoming more easy to store and transact, the cryptocurrency may prove to be some real competition for gold in this regard.

jim-rogers

- Jim Rogers
Europe, Japan, America, and the UK, all, are frantically trying to debase their currencies…I’m afraid that in the end, we’re all going to suffer…

Bitcoin vs Gold in Performance

Bitbugs have been better served than goldbugs on sheer performance with bitcoin returning over 1,700% in the last year while gold is down about -15%. An important caveat on bitcoin’s performance is the volatility is over ten times higher than gold’s fluctuations, even after being weighted to bitcoin’s recent, more stable days.

Gold to Bitcoin Ratio

The gold to bitcoin ratio has been in perpetual decline consistently since the inception of bitcoin, and particularly in recent times, bitcoin has outperformed while gold has scaled back. There seems no end in sight to this ratio’s decline, which presently sits at about 6 and half bitcoins to a gold ounce.

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