vs gold Thursday, October 8, 2020
I am often asked if cryptocurrencies will replace gold. I highly doubt it. Yes, like gold, a cryptocurrency has a limited supply. However, cryptocurrencies in aggregate have unlimited supply. Since cryptocurrencies compete with each other, new ones erode the value of existing ones. In contrast, new gold types are not being created, so gold is immune from such competition. Proponents of bitcoin, the most popular cryptocurrency, argue that its brand will protect it from competition. Yet bitcoin’s cryptocurrency market share has fallen from 95% to 60% over the past seven years. That decline should continue since new cryptocurrencies’ advantages include better security, faster transactions, lower electricity consumption and greater support from businesses and regulators. Cryptocurrency bulls claim that gold is inferior because physical gold is more difficult to store and transfer than cryptocurrencies. Yet that ignores that gold can be traded electronically using ETFs, futures or the same blockchain technology used to trade cryptocurrencies. Thus, even though cryptocurrencies have existed for more than a decade, it is unsurprising that their market value is less than 3% of gold’s. – Hirschmann Capital

But it’s still very early in the life of an entirely new type of financial instrument — one whose whole existence is a function of the faith its users put in it. In that way, it’s not unlike gold or any other currency, where the market determines its value. But without a history of how it behaves through events like a currency crisis, a stock market crash, high local inflation, deflation or stagflation, it’s a gamble largely based on dreams of what it could become, not a bet on what it has been. It’s probably a pretty safe bet that if Bitcoin ever hits rocky times, gold will make an excellent hedge, just as it has for stock and money markets for a long, long time. - GoldSilver
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