EMPEROR’S NEW GOLD?
Bitcoin and other crypto-currencies (“cryptos”) seem on the verge of becoming “acceptable investments”, with some observers hailing them as the “new gold”. Once sceptical banks have set up trading desks and some high profile investors and wealth managers have publicised their holdings, attracting renewed retail interest which contributed to a sharp price rise in the last 6 months.
The comparison with gold is not completely without merit, because gold can also live outside the regulated financial system. For some gold owners, the ability to store, transport and transform wealth was the appeal. These abilities may also have suited some early users of cryptos, hoping to stay out of the sight and reach of financial and criminal authorities?
Whilst it’s unsurprising to hear a few murky stories from the early days of cryptos, these likely pale in comparison to the colourful and bloody history of gold production, use and ownership.
However, as cryptos have rallied and gained wider acceptance, gold’s price performance couldn’t have been more different, slipping from the August 2020 highs of $2072.50/oz to below $1700/oz by early March 2021.
Before proclaiming Bitcoin as the new gold, it’s helpful to take a look at gold over the past couple of millennia.
WHY GOLD? For thousands of years, gold has been the first choice for those seeking to hold and transport wealth. The metallurgical properties of gold, and to a lesser extent its cousin silver, make it ideal for this task. Gold is chemical stable, so it doesn’t tarnish unless alloyed. Gold is universally desirable and recognisable by colour and density. Gold can be re-melted and worked easily, turning bullion into jewellery and back again. Gold is relatively rare with supply largely controlled, being roughly 1/20th as abundant as silver, although the mining ratio of gold to silver is about 1/8th.
Total gold production throughout history is estimated around 200kmt, with 70% mined since the 1950s, and is held in the following forms (approx. figs):
• Jewellery = 93kmt • Private holdings = 43kmt • State Holdings = 34kmt • Other = 28kmt • Known reserves = 54kmt
Based on above ground physical gold stocks of circa 200 kmt at $1700/ oz, this has an approx. value of $10.931Tn ($10,931 billion). To get a sense of scale, US Federal Government debt exceeds $27Tn and the S&P500 has a total market cap of approx. $33Tn (Feb 2021). In comparison, some of the most common crypto currencies have a combined market value of approx. $1.1Trn, with Bitcoin approx. 80% of that total.
Chart 1: Approx. Market Cap, US$ Trn Common Crypto
Approx. Market Cap, US$ Trn Source: ADMISI/Various
Physical Gold
US Treasuries
S&P 500 0 Source: ADMIS / Various 5 10 15 20 25 30 35
16 | ADMISI - The Ghost In The Machine | Q1 Edition 2021
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