Not All That Glitters Is Bitcoin

Not All That Glitters Is Bitcoin

The trade war between China and the US keeps climbing and, with it, geopolitical risk. The immediate consequence is the general fall of the stock exchanges and the devaluation of most currencies against the dollar. Fears of an impending economic crisis are felt in the environment and investors are looking for a safe haven or safe haven, as they like to call on Wall Street. The only thing that triggers is the value of gold and the price of the US Treasury bonds, Switzerland and some other issuer ranked among the most reliable on the planet.

The concern is such that no one seems to pay attention to another asset that, silently and as a result of geopolitical tension, rises strongly. In just ten days, he hit a 20% jump and exceeded 200% performance this year, after 2018 for oblivion. There are already those who call it the “gold 2.0”. It is a jewel of the digital age ready to replace, someday, the old, well-known and still coveted precious metal.

What are the arguments behind the Bitcoin phenomenon? Is it right to stop thinking of it as a currency to consider it as the future replacement of gold? If this reading is amplified and becomes popular: what could happen to its price?

The intrinsic value of gold and Bitcoin

The reasons for choosing gold as money thousands of years ago respond to a pragmatic look. Of the elements of the periodic table, the gaseous ones were the first to discard in search of the perfect candidate to become currency. Then, it was the turn of leaving the chair game to the highly reactive (easy to explode) and corrosive (which deteriorate). They were followed in that fatal destiny by the very abundant ones like copper and the really scarce ones like osmium, found only in meteorites. Only five of the eight noble metals remained standing: rhodium, palladium, platinum, silver, and gold.

Rhodium and palladium were discovered only in the 19th century, long after the need arose to use a measure of value for the exchange of goods and services. On the other hand, the melting point of platinum was too high for pre-industrial furnaces, which left everything in the hands of gold and silver. Since silver looks less and is usually very useful in industrial applications, gold ends up being the big winner of the contest. It meets the essential requirements: it is scarce, durable, portable, hard to fake and easy to authenticate.

Now, what determines you that an ounce of gold is worth 100, 1000 or 2000 dollars? The simple game of supply and demand, influenced by endogenous and exogenous variables.

Proponents of the definition of Bitcoin as gold 2.0 argue that this crypto active not only meets the aforementioned conditions but exceeds them, namely: it is equally scarce (only 21 million Bitcoin will be issued in total), portable (can be sent from one end of the globe to another in minutes without having to go through any government control agency), impossible to falsify (in ten years of life nobody has ever been able to hack Bitcoin) and easy to authenticate (authenticates in a decentralized and reliable way ).

It surpasses gold in several aspects: each Bitcoin can be divided into 100 million parts, to acquire it only is needed is a smartphone and Internet connection, its storage is infinitely simpler than that of the precious metal and it is much less expensive to save it.

At this point, the reader might wonder with complete justice if Bitcoin has any other attribute than those stated to determine its intrinsic value. The answer is once again sharp: the degree of mathematical beauty around its mechanics and operation with algorithms, economic theories, and new technology impacts the eyes. If this is added to the computer highway and companies that have been created in the heat of this crypto active, nothing brings it down. The ecosystem that today grows from the hand of Bitcoin is already around 200,000 million dollars in market value (200 billion according to the US measurement method).

But then, is Bitcoin not a cryptocurrency?

Here the waters are divided: for some pioneers of the sector such as Roger Ver, Bitcoin should be considered a replacement for money, while for others such as the Winklevoss twins (Facebook co-creators with Mark Zuckerberg) we are in the genesis of the birth of the new digital gold This controversy is very well narrated in the book “Bitcoin Billionaires” by Ben Mezrich.

The truth is that recent events seem to be twisting the contest in favor of those who see him as the successor of gold, given the following:

  1. Regulatory bodies have been laxer in recent months in many countries regarding Bitcoin transactions. They lifted bans and lowered the belligerent tone in defense of fiat money. Gold is another financial asset. By placing Bitcoin in that league, the authorities’ eyes change significantly.
  2. The correlation between the variation in the price of gold and Bitcoin has doubled from 0.496 last year to 0.837 from May to the present. A correlation of 1 would mean that the quotes of both assets move exactly the same.
  3. The devaluating prospects of the yuan seem to increase the price of Bitcoin. Given the strong controls that exist in China to buy dollars, the aforementioned ease of acquiring Bitcoins makes it a coveted store of value in the most populous country in the world.

In conclusion: what can you expect from the price of Bitcoin?

In April of this year, we were alerted about the possibility of Bitcoin accelerating its bullish march. Since then and in just 5 months, it rose more than 100%. He went from $ 5,000 per unit to more than 11,000. If the Bitcoin thesis as a gold competition is correct, we would be just at the beginning of a bullish movement.

The current market value of gold is 7.7 trillion dollars and Bitcoin today represents less than 5% of that amount. For both to match, each Bitcoin in circulation should be worth more than $ 400,000.

As you can see, Bitcoin enthusiasts have quantitative and qualitative arguments to reinforce their bullish sentiment. The increase in tariff barriers, the brakes on world trade and the return of the war of currencies should do nothing but “leverage” that optimism. The most representative digital companies (Amazon, Google, Apple) have already won their battle against their industrial peers to climb the podium of the most valuable in the world. Is it time for the trend to replicate in financial assets?

Maybe we should soon add some phrases: “I will not do that for all the Bitcoin in the world”, “not all that glitters is Bitcoin” and more.

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