Bitcoin

Will Bitcoin take the place of gold?

“Confirmation bias” is a very common pathology among Bitcoin fans. That is, the matter is so serious that sometimes it’s more than a bias, it seems like a delusion. The story of seeing Bitcoin in some as a “safe haven” like gold is no longer an idea, but a pseudo-religious dogma. I quote: “The Bitcoin Bull Rally explains the weakness of gold as a hedging tool.” I quote again: “Goodbye, I pray! Bitcoin breaks the correlation and shows itself to be a more reliable investment in the face of the global crisis. ” What the fuck are they saying In times of madness, it would be good to objectively examine this toxic narrative that insists on comparing the Bitcoin market to the gold market at all costs.

What is Affirmation Bias? Before you, Wikipedia: “Confirmation bias or confirmation bias is the tendency to prefer, seek, interpret, and remember information that confirms one’s beliefs or hypotheses, with disproportionate consideration of possible alternatives.” The “libertarian” Bitcoiners are the kings of it. And sadly, most of our famous crypto influencers belong to this tribe. The entire universe is always interpreted wrongly. Whatever happens, it all ends with the same initial conclusion: “Bitcoin is a safe haven like gold.”

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Will Bitcoin take the place of gold?
Will Bitcoin take the place of gold?

You never tire of repeating the same story. Which story? Well, the old liberation drama we heard from the days of Adam Smith. Holy god! How are you? Well, the world is on the verge of collapse because evil governments continue to print inorganic money. The solution is a hard currency system. The scarcity of the currency is essential for the growth of the economy. Bitcoin as a scarce currency is a safe haven in times of crisis. It’s like gold. Well, it’s actually better than gold. End of the story. Holy toothache!

To libertarian millennials hearing this for the first time, it may seem like the great revelation of the 21st century, but to those who have studied economic thinking throughout history, it’s an endless nightmare. It is the stone of Sisyphus. The ultra-conservative currents of all generations over the past 200 years have presented the same story as the last Coca-Cola of the desert. The so-called panacea, however, fails dramatically with every attempt at implementation.

Personally, I really like comparing bitcoin and gold in a poetic sense. The phrase “digital gold” sounds good. On the one hand, I find it very appropriate to the simple fact that gold, as an investment, is essentially a speculative asset. By “speculative” I mean that it is not a productive asset like a company. The return, for example, is based solely on the appreciation that results from supply and demand. For a productive asset like a company’s stock, the price depends heavily on the company’s underlying assets, revenues, products, and dominance of the market.

Gold is the king of non-making assets. Art as an investment is also an unproductive / speculative asset, but gold is fungible. Diamonds are less fungible, but they are a good example of this type of asset as well. Silver and other precious metals fall into the same category as gold, but gold is more peculiar as an investment because gold plays a prominent role in the monetary policy of the world’s central banks.

The term “digital gold” means that Bitcoin is the king of non-productive / speculative assets in the digital realm. In other words, it’s a simple saying. This does not mean that Bitcoin is literally used like gold in the monetary policy of the world’s central banks. And institutions and governments around the world hold large amounts of Bitcoin in their reserves to offset their currencies.

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The desire of many libertarians and conservatives to return to a hard monetary system is an aspiration. But it’s not a reality. If gold is gaining ground in a bear cycle, it is because central banks typically buy gold during those periods to help stabilize their currencies. However, this is not a revolution or a referendum against the Fiat system. They are business cycles. Something normal and ordinary.

It is entirely possible to use gold’s market cap as a reference to talk about bitcoin’s market cap. But that is always done. This does not mean that bitcoin is literally a substitute for gold in global macroeconomics. The gold market is huge. In part because gold is an active reserve of countries. And it is widely used by governments as collateral to get funding in the international market. This is a special feature of gold. The same does not apply to art, diamonds, or any other speculative asset.

A very volatile and illiquid “safe haven” is just nonsense. If Bitcoin goes up, it’s because there is demand. In the past, this has usually happened when the economy is full of liquidity and investors are more risk tolerant. The average person buys Bitcoin for speculative reasons. Not for political reasons. Currently, the Bitcoin market is too small and unstable to be used as a world reserve currency. Can you imagine a Latin American country issuing a bond with Bitcoin as collateral in London? Which international bank would sell this bond?

Ladies and gentlemen, we have to be smart enough to know that the libertarian drive to revolutionize the world economy with a hard currency system is not a fact, but the drive of a minority. Buying Bitcoin is not a vote for this supposed revolution. Furthermore, Bitcoin does not play exactly the same role as gold in world monetary policy. The Bitcoin market is too small, new, unstable and illiquid to be a safe haven right now. It is not a competition for gold in a macro-economic sense. They are not correlated. And fund managers don’t treat these two assets equally when designing their portfolios.

The net effect of gold and dollars in the world economy carries a lot of weight. It’s not something that can be replaced overnight. World trade revolves around the dollar. And gold is very important for government agencies. It’s not just about using it as a means of payment. It is not a commercial adoption. There is a whole tangle of obligations and lengthy agreements that go with these two assets.

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For example, Country X has a large part of its gold reserves in a deposit in London. This gold, in turn, is used as collateral to obtain long-term credit from a major international bank. This means that this gold cannot be sold as it is the security for a loan. Ah, but it turns out that bitcoin is coming into vogue and governments are now wanting to sell their gold to buy bitcoin. “Really?” Will Bitcoin take the place of gold?

To say that bitcoin is not like gold in a macroeconomic sense is not heresy. It’s just common sense. Not all of us want or believe in the libertarian revolution. We don’t all want a global hard currency system. Not all of us hate the dollar. Some of us see Bitcoin as an excellent investment due to the instrument’s accessibility, versatility, and profitability. The purchase is merely a financial and technological matter. It doesn’t necessarily have to be confused with politics or ideology. All about the separation of state and economy, the abolition of fiat money and the fundamentalism of the free market. Bitcoin, the new gold in the future Bitcoin standard? Is it really necessary? I prefer: Bitcoin, the great investment!

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