Everyone Lapped Up The “Bitcoin Is Digital Gold” Narrative
Looking back to when this narrative was born, I immediately disagreed but perhaps not in a way that many would expect. Regular readers will remember my post, “Bitcoin Is Not Gold 2.0 – So What Is It?” in which I went on to break down my own perspective. I also recently posted another article in which I addressed the performance of gold and how it is clearly failing as a store of value. In this article, I will address how gold has actually not been an effective store of value for some time, as well as address the recent perceptions of gold.
There are many now who are saying that Bitcoin has failed to be a store of value. Declaring that the narrative is no longer applicable and that Bitcoin has failed in this regard. In my own writings, I never made this comparison but suggested another viewpoint that is actually superior to a traditional store of value dynamic.
First Time Investors
Something else that also needs to be remembered is that many Crypto investors only arrived in 2017 and have very little history or experience within the Crypto space. Furthermore, for many, investing in Crypto is their first exposure to financial markets of any kind. It is important to note that some of the most influential voices in Crypto are simultaneously very knowledgeable when it comes to macroeconomics. To have an edge in Crypto, a grounding in traditional markets and economics is a must. It has been very clear of late how Crypto is not an isolated market but one that is in many ways affected by macroeconomics.
Gold is an asset that has survived thousands of years and understanding its role can help us understand the relationship it has with Bitcoin, as well as the comparisons being made.
A Store Of Value
The idea of a store of value is something that should be viewed over time. Let’s be honest, up until 2020, your dollar didn’t really lose much value over six to twelve months. Saying that Bitcoin has lost its store of value due to the price action over a period of months is not accurate in my opinion. Even holding dollars over short periods of time is even going to hold value to some extent. Dollar loss of value is incurred over years and so subsequently, a store of value should also be measured over years.
Who really cares what happens from month to month anyway? The dollar has lost 97% against BTC in the last five years! This is way more than a store of value and understanding how Bitcoin behaves is imperative to understanding the dynamic that I laid out in my initial post in 2020.
If It’s Good For Gold Why Not Bitcoin?
It’s strange how BTC can lose value over a period of months and it is said to be no longer a store of value, or “digital gold”. On the other hand, gold can lose value over a multi-year period and it is still referred to as a store of value? How on earth is that even logical? Looking at the graph below, it is clear that since 2012 gold has not increased in value at all.
So, if you invested $10K in 2012 it would still be worth $10K in 2022, which is by no means a store of value. Factor in inflation and depreciation of the dollar and you lost value over ten years. What’s worse is, had you bought in 2012 and viewed your investment in 2019, it would have been down 32%! How can a 32% loss over a seven-year period be a store of value?
Stores Of Value Protect Against The Decay Of Time
Stores of value need to operate as such over extended periods of time. As mentioned earlier, even the dollar will hold most of your value over a period of months. You cannot expect the value to be maintained over weeks and months, as volatility is part and parcel of any and all markets. However, over time the growth curve should begin to be seen. This is the dynamic of Bitcoin, just that it is even more extreme.
Bitcoin Makes Little Sense In The Present
The volatility and unpredictability of Bitcoin make it an asset that often appears to be extremely bullish, or extremely bearish in the present moment. However, over time, Bitcoin does increase tremendously causing it to not only store value but multiply value from within itself. I will wrap it up with the closing of my initial article on gold from August 2020.
Bitcoin is an asset that stores value and can be transported without means, moved without permission and then multiplies its stored value by the factor of time.
Gold stores value and is transported with great means, only moved with permission and has no ability to create new value.
It appears as if the final sentence is already not applicable, as we can clearly see that gold does in fact not store value over time! Thanks for taking the time to join me on this edition. Keep safe and see you in the next one!