Gold Is Failing As A Store Of Value

Bitcoin Is Not Gold 2.0 – So What Is It?

It is more than a year ago since I posted “Bitcoin Is Not Gold 2.0 – So What Is It?”. I think many who read it did not really agree with my thesis. However, it is now proving to be an accurate prediction. In hindsight, it is always easier to make bold statements but predicting market trends and shifts is at the heart of good investment disciplines. If we look at what I suggested in that article, we can see that my thinking was that gold would begin leaking as a store of value. I did not actually expect it to begin playing out as quickly as it has. However, when we examine the data, it will be quite clear that is exactly what is happening right now.

Let’s Look At The Data

Firstly, let’s view the gold chart, focusing on the past 12 months. There has been pretty much no price action for gold in a time and scenario where gold should be rather appealing.

Over the past year, gold has lost approximately 6%, which is actually contrary to what everyone was predicting. However, not contrary to the predictions made in the post from 2020. It often gets quoted that past performance is not indicative of future performance. For some reason, many people believe that this is not applicable to gold. I will agree that the longer the performance period, the higher the likelihood that it continues but that does not guarantee continuation.

Logic & Mathematical Principles No Longer Apply

Markets that have been pushed up in “value” by the effects of money printing, due to the majority of this freshly printed money making its way to the stock market. This is not really a realistic valuation at all. Already in 2020, companies were filing for bankruptcy while their share prices were soaring. The argument of intrinsic value is often put forward to try and discredit BTC.

This is rather amusing when that argument actually applies to the majority of the stock market. In the case where a company share has an enormous valuation and is simultaneously bankrupt is evidence of that. This is the reverse methodology that many praise Buffet for. He is known to seek out companies with a low market valuation, while simultaneously having significant fundamental and intrinsic worth.

The principles that once governed markets are literally operating in reverse.

Gold Vs Bitcoin

Looking at the same time frame for Bitcoin is a completely different scenario. BTC is up approximately 500% for the same period and is still likely to see further significant upside this year.

The Bitcoin chart is aggressively bullish, even if the market was to correct significantly, it still reflects tremendous growth over a very limited time period. There is obviously a fair amount of capital leaving gold in favor of Bitcoin. As mentioned in the original article, an asset would be required that actually goes beyond preservation and actually multiplies its own value over time.

Bitcoin – The Appropriate Asset For The Future

To quote a section from my original article in August 2020:

What I am suggesting is that even when the price of gold skyrockets in the upcoming hyperinflation, it will start to lose steam. The ascent will be so steep that gold will eventually be unable to stay on par in terms of value. The discrepancy may not be catastrophic but I believe that it will cease to be able to store value. It will become outpaced and we may see gold leak value by a couple of percent a year.

This is exactly what we are now beginning to see. Due to inflation and monetary expansion, gold needs to actually appreciate by a minimum of 20% per year in order to maintain its store of value status. The true figure is most likely a little higher. This is exactly why Bitcoin is currently the best asset going forward. A borderless store of value and value transfer that is simultaneously property and multiplies its own value over time. This dynamic is largely due to the halving and seeks to repeat by design.

BTC Is Busy Dethroning Gold

Bitcoin may be more than a store of value and offer other use cases but that does not mean that gold investors are not going to migrate over to BTC. For them, their requirements are met in the form of BTC. Statistically, you need to hold BTC for a number of years in order to experience exceptional growth but gold investors also hold gold for multiple years.

This makes it an attractive alternative to gold with more immediate and long-term perks. With gold losing its edge, BTC is clearly the asset that stands first in line to receive gold outflows.

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