BITCOIN - EMPEROR’S NEW GOLD ? (TGITM Q1 2021) – Lost their shirts
In late 2020, Bitcoin was rallying hard against a background of gold price weakness, and being hailed as the “new gold” by banks who were quickly setting up bitcoin trading desks.
It seemed a premature claim, given gold’s multi-millennia track record as a store of wealth and globally accepted medium of exchange. Gold’s price stability against silver had been established over a few thousand years, being a function of the recoverable gold and silver in multi-metal deposits. Ancient Greece and Rome had a ratio of 10:1, which improved to 15:1 by US law in 1792 and 15.5:1 in France in 1803. Gold and silver were also the universal trade currency up until the late 1800s, with Chinese trade accumulating Britain’s silver reserves until the opium trade got it back.
Bitcoin did have one thing in common with gold, being a discrete, portable form of wealth popular outside the regulated financial system.
Not all countries took the same view of crypto. China banned it, but El Salvador made it legal tender for all transactions, and Panama allowed crypto for any civil or commercial operation. Many western governments applied capital gains tax to
Source:CoinGecko ©Statista 2023
crypto, and mainstream crypto exchanges reported gains to the tax authorities.
In early 2021, crypto bulls were predicting $100k Bitcoin and pushing a number of arguments to justify the rally:
• Crypto holdings were only about 10% of the value of above ground gold stocks ($1.1Tn vs $11Tn), so prices would appreciate if crypto gained share as a “store of wealth” asset
• Bitcoin mining became more complex as it approached its 21m coin limit, requiring more computer resources and high energy costs which justified ever higher Bitcoin prices.
“Store of wealth” arguments work best in a bull market, and bitcoin hit a high near $69k in 2021.
However, extreme “price volatility” and “store of wealth” are rare companions, and investors didn’t have to wait long to realise it wasn’t the new gold when Bitcoin dropped below $16k the following year.
BITCOIN DID HAVE ONE THING IN COMMON WITH GOLD, BEING A DISCRETE, PORTABLE FORM OF WEALTH POPULAR OUTSIDE THE REGULATED FINANCIAL SYSTEM.
6 | ADMISI - The Ghost In The Machine | Q2 Edition 2023
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