Is Bitcoin Digital Gold?

Apr 29, 2021

More often than not, value is attributed to goods based on the laws of supply and demand. Value depreciation is the worst process an asset can experience, and as such, the world of finance and investing seeks goods that maintain their value. 

To do so, these goods must not only be momentarily valuable but retain their value at all times as well, which is often supported with a limited supply. With the right combination of reliability, supply-to-demand ratio, and market value any product, or can act as a store-of-value asset.

The value of gold

Throughout human history, gold has always acted as a reliable hedge against market disturbances. As a rare metal, gold derives its value not only psychologically but intrinsically as well. From the earliest civilizations of the Mesopotamian region to the era of exploration, gold has always been held high in regard in society.

While humanity did take a step back after the Bretton Woods conference in 1944, an event that lowered the asset’s influence in modern economics, gold is still purchased and stored for the purpose of protecting one’s wealth.

Bitcoin as digital gold

In an era of uncertainty and heightened volatility, investors are naturally inclined to move their wealth to assets that perform well in brutal bearish market conditions. After the 2008 economic crisis, people have not lost their trust in institutions but decided to look into ways to preserve monetary value in spite of inflation along with improving their finances by investing in volatile but safe assets.

Coincidentally enough, 2008 was also the year in which a new and revolutionary type of asset arrived: Bitcoin. It is worth mentioning that Bitcoin’s genesis block included a secret message that, once decoded, revealed: "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks." On that account, we see that Satoshi Nakamoto’s invention is nothing else than an attempt at regaining control, decentralizing wealth, and bringing back a gold-like asset.

Hex version of Bitcoin's genesis block

Is Bitcoin digital gold?

The narrative for Bitcoin being digital gold stems from the fact that BTC’s maximum supply is limited to only 21 million coins. Combined with the impossibility to counterfeit Bitcoin or produce it beyond this supply, investors deem Bitcoin to be not only digital gold but a better form of gold.

Bitcoin’s one trillion market cap has also earned it a certain measure of legitimacy and reputation, which is needed for an asset to be trusted. With gold resting at an $11 trillion market cap, which is slowly pouring into BTC, Bitcoin confidently marches towards a place where it can represent a serious Store of Value alternative.

Market capitalization of top 8 global assets according to 8marketcap.com

Coupled with a parabolic rise in USD M2 money supply, which began in the 2000s and exploded during the 2020 COVID pandemic, Bitcoin is surely establishing itself as digital gold. It may not replace gold, but its performance during a twelve years old lifetime tells us that Bitcoin at least has a chance to challenge gold.

M2 Money supply for U.S. dollar

As we migrate to an entirely digital society and electrify all aspects of life, money will reach a point where it must leave its traditional form. Digital currencies are massively discussed and recognized as a realistic option for the past two years, and central banks have already decided to base them on blockchain technology

Digital dollars, yuans, euros, rubles, and yens are being developed at this very moment, and it will not be long until digital currencies are the only ones that we use - blockchain versions of fiat money will supplement cash in the same way that cryptocurrencies have supplemented fiat. 

Considering that their supply and unnecessary printing activities will certainly not subside, Bitcoin remains to be the only real SoV option in a digital environment such as this one. Unless regulated or even banned, there is a clear argument for why Bitcoin will be digital gold. 

What else makes Bitcoin digital gold?

Besides a limited supply, there are other reasons why Bitcoin is efficient at protecting value and hedging against the market. The cryptocurrency’s Proof of Work consensus model is unique in the way that block rewards are halved every four years, which creates a sufficient number of newly mined coins for there to be a reason to power the Bitcoin network.

Moreover, the system ensures that the circulating supply does not massively increase even if new waves of miners enter the crypto market. Along with the fact that Bitcoin’s smallest unit (Satoshi) represents 1/100,000,000 of 1 Bitcoin, we know that Nakamoto’s currency has all the properties needed to crown itself as an SoV: scarcity, fungibility, portability, and divisibility.

Final Word

The case of Bitcoin becoming digital gold revolves around a game of time. Technological inventions disrupt the world and, in return, push all products and services to transform into digital versions of themselves. Whether there will be a singularity or not is not important: we can solely rely on the fact that most, if not all, will be digitized.

Being a key tool of reflecting someone’s resources, money will meet the same fate. Once all financial activity is done online, and we lose the need for cash, Bitcoin will, as a digital currency, gain incredible importance in the economic landscape. Thanks to its SoV properties, Bitcoin also has the chance to seriously compete with gold, if not replace it. 

The question is: how long will it take for crypto as a whole to reach that stage, and when will digital currencies reign supreme? Pure speculation pinpoints 2030 as a notable date for tectonic changes. If Bitcoin survives by that year, it will offer a great hedge against inflation and value depreciation in general - after which it will stand side-by-side with gold or even replace it. 

Whatever the case might be, Bitcoin will, at that point, stop acting primarily as a speculative asset and turn into a reliable tool for storing value as an SoV. Trends already show us that gold investors are escaping into Bitcoin, so why not save us time and confirm in 2021 that Bitcoin is, in fact, digital gold.

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