![]() Last year was more talk, but this year we’ve seen see some real action. They began to recognize bitcoin as a legit alternative to traditional asset classes, one that deserves a place in the portfolio. Warren Buffet famously trashed it as “rat poison squared.” But during Covid, investors have come around. Just a few years ago, it was just this fringe asset that institutional investors laughed off as nerds’ play money. Is bitcoin maturing into a store of value?īitcoin has come a long, long way and deserves credit no matter where you stand in the crypto debate. So the question crypto investors should be asking isn’t “Will bitcoin replace the dollar?” but rather “Will crypto convince institutional investors to swap their gold with bitcoin as part of their 5%-something allocation in the portfolio?” And for a store of value, 13 years and one recession are just baby steps compared to gold’s track record. Its weak spot is that it’s still on a roller coaster. And its “monetary policy,” which is largely deflationary, is dictated by the people who use it. It employs a distributed ledger, which means anybody can mine or use it without centralized oversight like gold. Yes, it’s digital but it has a built-in incentive system that makes it scarce. Technically, it has it all to replace gold as a more convenient store of value. Plus holding metal slivers in a vault these days is a bit archaic. The catch is, if held directly-which makes the most sense for its purpose-gold is expensive to store/trade and illiquid. If you don’t believe it, look it up for yourself.) (As a rule, an ounce of gold has always been worth as much as a decent suit. And its value purely depends on supply and demand rather than centralized monetary policy.įor a store of value, gold has a hell of a credential.īy ancient sources, it has held its value against inflation for over 5,000 years. Its supply is limited-not by nature but by design. But as asset classes, the two are very much alike. In form, bitcoin is probably the furthest thing from gold you can think of. Or, as my ex-colleague Jared Dillian puts it: “Gold is a hedge against bad government decisions.'' In other words, gold is the “insurance” against everything that can go wrong with paper money. And for thousands of years, it has successfully fought off inflation and even gone up in value. In fact, gold has outlived every modern currency ever created. That’s because gold has just one job: sit tight in a vault and hold its value. And every year, gold holdings keep growing and growing. Institutional and individual investors have sunk ~$2.7 trillion into gold. And yet, central banks hold 34,000 tons of the shiny, yellow bullion bars in their reserves. You can’t walk into Pizza Hut, drop a sliver of gold on the counter, and expect to get a slice of pizza in return. The rest was melted into bars and coins and stowed away in vaults And of that amount, just 35% went into electronics and jewelry. For example, ~3,000 tons of gold were dug up and sold last year. Unlike other commodities like oil, gold has limited use. More precisely, gold-one of the most expensive and “useless” commodities in the world. It competes with “insurance” against paper moneyįrom an investment and ideological standpoint, bitcoin is more like a commodity than a currency. If it grows too big to compete with paper money, lawmakers will eat it alive.īut the fact that bitcoin can’t become a currency doesn’t necessarily mean bitcoin is worthless.īTC doesn’t compete with paper money. Unless there’s some kind of political cataclysm that shreds the world order as we know it to pieces, bitcoin’s chances as a currency are very slim. Banning bitcoin at this point would be a political walk in the park compared to the Great Confiscation and other measures governments have taken in the past. In the 1950s and ‘60s, Australia and the UK carried out similar gold “confiscations” to stop the decline in their currencies. Later the dollar was re-pegged to gold at a ~50% higher price.Īnd the U.S. This allowed the Fed to print more dollars to support the economy and shore up the exchange rate. ![]() So Franklin Roosevelt passed Executive Order 6102, later dubbed the “Great Confiscation,”which forced Americans to turn in their gold at well below market rates. It couldn’t print that many dollars to prop up the economy because the currency was linked to gold. ![]() But unlike today, the Fed’s hands were mostly tied. In 1931, the nation was in the heat of the worst financial crisis in history. And yet, any time gold threatened to strip the government of its power to control money, lawmakers quickly stepped in.Ī good example is the U.S.
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