The World Gold Council has highlighted some significant differences that set the commodity apart from Bitcoin.
Due to its success as a store of value Bitcoin is often labeled ‘digital gold.’ This sentiment came to the fore in the latter months of 2017, as Bitcoin entered massive bull run that had the financial world in a bit of spin.
Scalability has been a long-term problem plaguing Bitcoin, but the saving grace from high transaction costs and delays has been its emergence as a store of value. While Bitcoin remains in a volatile state, it is still head-and-shoulder above its altcoin predecessors in terms of value per coin. A plethora of cryptocurrency and mainstream financial analysts have likened Bitcoin to gold for this very reason.
Well-known American broadcaster Max Keiser has been particularly vocal about his predictions for Bitcoin. While he envisions the preeminent cryptocurrency hitting $100,000 highs, Keiser also believes Bitcoin will lead to the revival of physical gold trade, by highlighting speculative trading methods employed by mainstream traders:
“Bitcoin is helping gold by shattering the matrix of Wall Street that is incurring the naked short-selling and financial manipulation that is going on in the futures market of gold.”
World Gold Council says Bitcoin is not like gold
In a document published on Jan. 25, the World Gold Council (WGC), the market development organization for gold, shed light on its stance towards cryptocurrencies. Based on the gathered statistics, Gold saw 13 percent growth in value in 2017- which by all accounts is a positive statistic, but it pales in comparison to the parabolic growth of Bitcoin during the same time period.
Nevertheless, WGC’s report went about explaining its stance on cryptocurrency, and why it sees Gold remaining an integral store-of-value investment in the age of cryptocurrencies. It’s hard to call the arguments shockingly fresh though as gold trade sees less volatility, its market is far more liquid and highly regulated. It is also well-established as an investment portfolio.
Gold liquidity and diversity
The WGC highlighted the fact that gold has a far higher day-to-day liquidity. In relation to gold’s $250 bln worth of trades per day, the WGC estimates that Bitcoin’s daily trade is worth around $2 bln- roughly the equivalent of gold-backed exchange traded funds.
Another factor is the diverse uses and applications of gold. Gold’s highest demand comes from the jewelry industry, accounting for 50-60 percent of gold demand over the past 20 years. Another 30 percent of demand comes from the investment portfolio, while the rest applies to the tech industry and central banks.
Common characteristic- scarcity
As the WGC cites, Bitcoin’s supply increases at around four percent each year- as it nears its 21 mln coin cap. This will only be reached in the year 2140, due to the scaling difficulty of mining – but this anti-inflationary process is a common characteristic shared with gold as the WGC points out in its report:
“Approximately 3,200 tonnes of gold have been mined on average, each year, adding about 1.7 percent to the total stock of gold ever mined. Bitcoin’s future diminishing growth rate and ultimate finite quantity are clearly attractive attributes, as is gold’s scarcity and marginal annual growth.”
Gold trade looking into Blockchain
While the WGC clearly wants to quash any comparisons to Bitcoin and cryptocurrencies, the industry seems to appreciate the value of Blockchain technology. The distributed-ledger system that underpins Bitcoin and various altcoins have proven its value, and bright minds began exploring almost limitless applications of Blockchain systems. According to the WGC, the gold industry is among them:
“In the gold market, various players are exploring Blockchain in the context of transforming gold into a ‘digital asset,’ tracking gold provenance across the supply chain, and introducing efficiencies into post-trade settlement processes.”
This is likely to be done on private Blockchains. But nevertheless, the financial world is taking to the idea of Blockchain technology.