Crypto Global

Bitcoin vs Gold

Dec 8, 2020

Have we reached the peak of Bitcoin? That's a good question. Because more and more institutional investors as well as famous billionaires around the world are massively getting into Bitcoin.

As demand nears infinity, Bitcoin could soon find itself at a new price level and it will become increasingly impossible for the average retail investor to acquire Bitcoin as all 900 Bitcoins per day generated by the mining are being sucked up by the institutions and so that these Bitcoins only come onto the market to a small extent. What we are currently seeing on the exchanges is that the inventory of Bitcoin that the platforms have available to create markets is diminishing. You are simply running out of coins and very few coins are coming onto the market. Only the largest institutional buyers alone have the daily demand for several thousand Bitcoins per day, but only 900 Bitcoins are created per day. Demand already exceeds supply.

For years we have heard and read that Bitcoin is displacing gold. The CIO of Blackrock, the world's largest asset manager, managing roughly $7 trillion, says Bitcoin will largely take the place of gold because it's so more functional than passing around a bullion of gold. And Bitcoin's network effect has forced traditional financiers to change their attitudes towards digital currency. This is a remarkable statement as we have heard the argument for years that Bitcoin is Gold 2.0 and that gold is superior. So far, such statements have only come from the internet, social media, etc., but not from institutional actors.

The largest gold reserves are held centrally - usually by national banks. With Bitcoin, it's the private key owners who make the difference. With Bitcoin, you never have the same problem you have with gold. The price of gold is driven by derivative traders and, as I said, is highly centralized. So the gold price is very slow and sluggish. Bitcoin is decentralized and cannot be controlled from a central player. So it has two properties that gold would like to have but unfortunately not. And on top of that comes the absolute scarcity that gold doesn't have either, plus the store-of-value in which you can invest your wealth and use it for payments. When you add it all up, you can understand why these institutional players are starting to get into this market.

At DECOM, we believe that Bitcoin, in its current situation, is not necessarily viewed as a mere safe haven or a substitute for gold. In fact, the debate we are currently having about whether it should be gold or Bitcoin is wrong. Both are uncorrelated assets in their own right. So gold certainly plays a role, as do cryptocurrency and Bitcoin. Everyone knows how to hold a diversified portfolio, which means that you're basically holding as many uncorrelated assets as possible. On that basis, this means that one should hold Bitcoin and gold, as well as all other uncorrelated assets, as part of a diversified portfolio.