Evaluating the possibility that Bitcoin could replace the value of Gold

Image source: pexels

There is probability to every event, from the chance of you being late for work to the chance when Earth will be hit by an extinction-level meteor. No doubt there is also a chance that Bitcoin may replace Gold. I have been putting off on commenting on this topic because this was my exact first thought a year ago about Bitcoin when prices soared to US$20,000 per BTC. A recent article in The Independent - Anthony Cuthbertson posted comments by John Pfeffer, a partner at UK-based Pfeffer Capital, is helping me re-evaluate this question:

"If bitcoin becomes the dominant non-sovereign store of value, it could be the new gold, or new reserve currency." said Pfeffer. If bitcoin displaced 25 percent of foreign reserves, the total worth of the bitcoin network would be somewhere in the region of $6.4 trillion. Bitcoin’s current market cap is currently around $150 billion, while one bitcoin is worth just under $9,000.

If the above claim is true, Bitcoin could experience a growth of 42X. Examining the history of Gold might give us a better understanding of the possibilities.

Image source: goldsilverworlds - 200-year historical Gold price chart

History of Gold
Even before Gold prices were listed, Gold has been mined over thousands of years. From the historical 200 year charts, Gold prices started around US$20 and rose up to about US$1300 today. The prices have remained stagnant for almost hundreds of years until 1929, when the stock market crashed (Read more here). Paper currency at that time was seen as a risk and investors started buying Gold as reserves. From then on, we have seen a 50X increase in Gold prices the last 89 years. If we were to take Bitcoin's baseline as US$500, a 50X increase would see Bitcoin reaching US$25,000 - a very reasonable estimate.

Image source: coinmarketcap - Bitcoin

Looking beyond Bitcoin - Altcoins as a store value
We have no concrete evidence that Bitcoin is a store value in time of a crisis, however, Bitcoin's peak price in December 2017 was coincidental with North Korea's series of missile launches in 2017 (see CNN's article). We did not see Gold prices going up last year, so this could be the only indication that Bitcoin was already replacing Gold? I do not want to further speculate that North Korea may have been dabbling in Bitcoin. This is however open for further discussion.

Other than Gold, we have other precious metals such as Silver, Platinum and Palladium and also rare metals that you can barely find more than 5 grams on Earth (eg. Man-made elements). Similarly, cryptocurrencies have an array of altcoins: Ethereum, Ripple, Monero. All of them have their own intrinsic values and serve their own purpose, for privacy or smart contracts etc. Gold itself serves many important uses in our electronics and tech and hence its value is really difficult to be undermined. Bitcoin's adoption is a challenge for now in its infancy stages.

To bring our focus back to Bitcoin's prices, it seems that the "limiting supply" factor did not play a major role for both Gold or Bitcoin in surging its prices. But because Bitcoin's history is shorter than Gold, there is still a lot of room for what is going to happen in the future. Perhaps a bigger crisis.

-tysler

Image source: Wikimedia Commons