Bitcoin has been called many things over the years. One of its latest titles is “gold killer.”
Case in point, Grayscale Investments earlier this year unveiled an advertising campaign that urged investors to “drop gold, buy Bitcoin,” which centered around showing how the precious metal is rather inefficient and antiquated in today’s modern economy.
Many gold bugs, of course, have laughed off this sentiment as pure insanity. But, the “Bitcoin beats gold” narrative recently gained traction as reports revealed that the gold market has been rife with some problems.
Bitcoin Fundamentally Stronger Than Gold?
Gold bars seem simple enough. They’re large, orange-colored, and stamped slabs of metal that weigh a ton for their size.
Despite this, they can be faked. Prominent cryptocurrency analyst “PlanB” recently drew attention to a story that revealed that counterfeit gold bars, which are emblazoned with the “official” brands of major refineries and mints, have been circulating markets around the world.
— PlanB (@100trillionUSD) October 21, 2019
Sure, the gold itself is not fake (the gold in these “fake” bars still are made up of atoms with an atomic number of 79), but these stories still go to show that there are holes in the bullion metal in terms of verifying what is legitimate and what isn’t.
This isn’t the only recent tidbit of news that has validated the idea that Bitcoin may be better than gold. Per previous reports from Blockonomi, NASA earlier this year found that an asteroid dubbed “Pysche 16” is filled to the brim with gold, platinum, iron, and nickel.
It has been estimated by individuals like EuroSun Mining’s Scott Moore that the various metals on the asteroid would be valued at over $8,000 quadrillion if mined in their entirety, a value of metal that is more than the worth of the world’s capital in aggregate. Crazy, I know.
To put it shortly, gold isn’t as scarce as we think it is.
Bitcoin, on the other hand, is algorithmically scarce. The cryptocurrency, in fact, has a supply cap of 21 million, which will be reached by 2140 according to current estimates.
What’s more, unlike gold, Bitcoin’s supply can be predicted to a tee, so to speak, years in advance and is entirely transparent — something that gold bugs cannot claim they can do, as predicting the asset’s supply or knowing how much is in circulation with pinpoint accuracy is nigh impossible.
Not Beating Gold… Yet
Sure, Bitcoin may be good as an alternative to gold’s store of value properties at a fundamental level, but is it actually acting as a hedge?
At this time, not really.
In early August, when both the U.S. and China were exchanging massive trade and tariff blows regarding the trade spat, an odd market trend emerged. Data from Huobi’s over-the-counter trading desk, which is widely known to be primarily used by mainland Chinese investors, showed that Tether (USDT) was trading at a nearly 1.3% discount.
Bitcoin, according to Chinese cryptocurrency venture capitalist Dovey Wan, was also trading at a discount in China at the same time.
Tether is now trading at a pretty wide negative premium in China mainland, same with Bitcoin
tell me more abt “Bitcoin is a safe heaven asset for the Chinese theory”
— Dovey "Rug the fiat" Wan (@DoveyWan) August 9, 2019
Sure, a 1.3% discount — which amounted to around $150 at Bitcoin’s then current price of $11,800 — wasn’t much in the grand scheme of things. But in a market expected to have a heavy premium due to the oft-cited safe haven narrative, any discount should be seen as quite shocking.
As Larry Cermak, the head of research at The Block, pointed out “[this is evidence] that Chinese investors that were affected by last week’s Chinese yuan devaluation, [which was a result of an escalation in the trade war], are not the ones buying Bitcoin.”
For some context, gold rallied — and rallied hard — during that time, hitting a multi-year high of $1,555 by early-September, partially due to the reports that the world’s central banks, People’s Bank of China included, have started to accumulate bullion in anticipation of the U.S. dollar weakening.
All this considered, calling Bitcoin a safe-haven play that is better than gold might be a bit shortsighted… at least for now.