Is gold hesitating as a safe haven? A Coinbase blog post on May 1 suggested this A few months after the COVID-19 pandemic, the gold market’s efficiency against Bitcoin (BTC) could decrease. “Bitcoin and gold are fundamentally similar as scarce and accessible units of value around the world,” the report says, but recent “challenges” in the gold market “show Bitcoin’s clear advantage over gold.”
The event that triggered this observation was a restriction of the market offer. Coinbase reported, “According to the LA Times on March 24, the New York gold market has experienced a historic decline as the global pandemic drowns out physical trade routes as investors hoard the metal as a haven.” Investors and bankers are in dire straits faced with gold bars and coins.
A crack in the gold armor?
Is the world’s most popular store of value losing control? And if yes, Are investors and gold lawyers enthusiastic about BTC as new protection in times of crisis? Some doubted the problem of supply shortages. Campbell Harvey, J. Paul Sticht Professor of International Business at Duke University, told Cointelegraph: “I’m not worried about the so-called bearish contraction. You certainly won’t see it in the data, and people have been talking about it for over a month.”
Kevin Dowd, Professor of Finance and Economics at Durham University in the UK, commented Cointelegraph: “I can imagine that these physical delivery problems will be solved soon. We recently bought some gold and there was a delay in delivery, but only three weeks. I don’t see a big connection between such delays and Bitcoin. “
The Coinbase report also suggested that the coronavirus pandemic had minimal impact on Bitcoin depletion: “Bitcoin’s global mining ecosystem appears to be resilient,” as opposed to gold production, which “affects gold refineries, miners, and supply chains.”. For BTC: “Bitcoin is not based on fragile physical supply chains and is really accessible worldwide.” Dowd, a BTC skeptic, was also unconvinced by this claim and told Cointelegraph:
“I’m pretty sure about it [BTC] You’ll face mining problems in the future as the amount of Bitcoin mined is nearing its limit. What happens when mining stops? Do we really think the price will be stratospheric to compensate the miners, or do you think they will be expelled at some point?
The Coinbase report highlighted the relative shortage of BTC, particularly given the upcoming halving, and noted that “Bitcoin’s new supply rate is ~ 3.6% per year and will decrease to ~ 1.7% on May 12th On par with the historical gold shortage. “He also referred to the advantages in terms of transaction times and fees. In September 2019, a BTC transaction worth more than $ 1 billion was broadcast for a fee of, for example, only around $ 700. The price of a comparable amount of gold would have been outrageous.
The report concluded that “Bitcoin has a technological advantage when comparing deposit, transportation or withdrawal options with gold.” And if current market conditions continue, Bitcoin can stand out even more. “
Gold still rules
The big question, however, is whether BTC will ever replace gold as a store of value, and here Bitcoin’s ongoing volatility remains an important hurdle. John Griffin, owner of the James A. Elkins Centennial Chair of Finance at the University of Texas, told Cointelegraph: “Affected gold supply chains can make gold transactions difficult, but they shouldn’t hurt you as much as a store of value. “He added that in the current crisis,” BTC fell when the market fell and mainly recovered when the market recovered. So when it went to cover it was bad. “
Duke’s Harvey agreed, saying gold volatility is about 15% a year, which is close to that of the stock market. “The volatility of the cryptocurrency is enormous. It is four or five times the volatility of gold. I would not call this a safe haven.”
However, BTC has certain advantages because it is teleportable, which makes it useful in arbitration, for example, as Harvey has admitted. For example, a trader wishing to take advantage of the gold price differential between New York and Europe could be tempted to deliver physical gold from Europe to the United States for sale, but that would likely take a while, during which time the price differential could disappear. Cryptocurrencies don’t have this problem. “There is no physical shipment. Arbitration is much easier for something that is a purely digital asset, which is a clear advantage.”Said Harvey.
Gold in the form of cryptocurrencies?
However, if BTC is unable to become a business of useful value in the near future, it does not necessarily mean that cryptocurrencies do not play a role in hedging future crises. Last year, stable gold-backed coins hit the market that caught Harvey’s attention. He also commented: “You delegate the storage of the precious metal to another person and then receive a coin that is guaranteed and that you can quickly and safely process at very low cost.”
According to a recent research report from Blockchain.com, the market for stable gold-bound coins has quadrupled from $ 10 million to over $ 160 million in the past 12 months.
“Innovations in blockchain technology are quietly changing the paradigm of physical gold ownership,” said Matthew Alexander, a compliance analyst at Tether (USDT), in a recent Cointelegraph article, adding that stable gold-backed coins are possible fulfill the economic purpose of physical ownership of gold. While many of the traditionally associated challenges are overcome, e.g. B. “Gold reserves must be physically protected against theft”, this is not a problem with gold tokens.
Three stable currencies currently dominate the market: Tether Gold (XAUT) with a market value of USD 87 million; PAX Gold (PAXG) with a market capitalization of $ 44 million; and the $ 25 million DGLD token, which, according to Blockchain.com report, represents 94% of the gold token market by value. DGLD was launched in October by a consortium of CoinShares and MKS as well as Blockchain.com. However, the new stable gold coins are similar to exchange-traded funds or ETFs, Harvey said, adding:
“The stable gold coin must have a vault for the coin and have an audit, security and the like. However, the advantage of the stable gold coin is that you can use it for instant transactions. It is much more stable than Bitcoin or Ethereum, and I see this as a growth area. “
Not everyone is convinced, as Mati Greenspan, the founder of Quantum Economics, asked Cointelegraph: “Why would anyone rather have a stable coin tied to gold than physical gold?” Maybe for security reasons or because it is teleportable? “It may have a small advantage to have gold in tokens instead of having paper gold in a brokerage account, but it really depends on how much trust you put in each other’s issuers,” Greenspan said. “Physical gold triumphs over both by far. If the power fails [eléctrica]Neither token nor broker gold will bring you anything. “
Griffin from the University of Texas sees potential in gold tokens. “A stable currency that is audited and fully backed by dollars or gold could be a good store of value.”he said to Cointelegraph, adding:
“However, traders already have gold ETFs that are fairly liquid, so it is not clear that a stable cryptocurrency is preferable unless it is widely used, fully tested, and has lower transaction costs.”
Gold ETFs won’t go away anytime soon, Garrick Hileman, research director at Blockchain.com, told Cointelegraph. They offer some advantages over gold tokens, such as: B. increased liquidity and a foundation with supervisory authorities. In the meantime “Gold ETFs cannot simply be used for everyday global transactions such as currencies that are traded 24 hours a day, 7 days a week or that function as programmable cryptocurrencies.” For example, the integration into intelligent credit or credit platforms.
A new dialectic?
Has the balance of power between Bitcoin and gold or even stable currencies and gold changed overall as a result of the current global crisis? Harvey said:
“In the decentralized finance world, I see stablecoins as a real threat to mutual funds and ETFs. And gold-backed ETFs could be affected by stable gold-backed currencies.”
For his part, Hileman proposed reformulating the debate. Instead of Bitcoin vs. Gold, could soon be Bitcoin vs. Gold-backed tokens, meaning competition within the cryptocurrency world. He shared with Cointelegraph:
“The rise of gold tokens is a fascinating competition for hard assets for Bitcoin. […] Unlike bitcoin, gold is a much more mature and liquid asset. Gold has greater regulatory clarity and is largely owned by central banks. The fact that gold can now be held in cryptocurrency does it [es decir, al oro] much more competitive with bitcoin. “
From this point of view, a new type of dialectic can emerge, in which gold (thesis) leads to its reaction, Bitcoin (antithesis), and in which the tension between the two is released by stable coins (synthesis). However, the gold-backed token market is still tiny compared to bitcoin, let alone gold. “The sure answer,” said Dowd, “is that it’s too early to say anything.” This is really just a tea leaf read. “In the long run, I’m a bullish gold and a bear from BTC. In the short term: who knows? “