What the history of gold teaches us about Bitcoin as a warehouse of value

The most convincing use case for Bitcoin today is as a refuge of values. But all too often, people dismiss the idea because of its volatility.

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How can a stock warehouse be when its price moves 20% in a month?

It's a refrain we've heard recently from JP Morgan, Goldman Sachs and Vanguard, among others. Typically, these people compare Bitcoin with Gold and decide that it is insufficient.

"Gold is solid, Bitcoin is volatile. It will never work. "

These statements are ignorant of the history of gold and lack imagination.

What the history of gold teaches us

The 70s are a dividing line for gold. Before 1971, the United States dollar was backed by gold, and the value of gold was effectively guaranteed by the full faith and credit of the American government.

When Richard Nixon took the US out of the gold standard in 1971, he left the gold free of its moorings. What followed was a period of great volatility, as gold struggled to establish itself as an independent storehouse of wealth. In 1974, for example, gold bullion prices rose by 73%, before falling by 24% in 1975. In 1981, gold lost 33% of its value, after having risen 121% just two years earlier .

You can almost hear the detractors now: " how can you call yourself a safe haven when you lose a third of its value in a single year ?"

How a new value store looks

This volatility is what you would expect from a new refuge of values. Insisting that a new reserve of value arise fully in its long-term stable state is asking too much. In fact, two things would be expected from any store of value as it is established:

1- A price that rises quickly at first, and then slows down : the price of a new reserve of value probably starts very low, as few would believe in it. When it is established, prices would increase exponentially. Over time, this price appreciation would slow down as it reached a stable state.

2- High volatility, but decreasing : similarly, early volatility would be extreme, since its long-term sustainability would be in question. But over time, that volatility would subside as the asset became more established.

That's exactly what we saw in gold, and Bitcoin is following the same path. The price of Bitcoin increased exponentially in its early days, and that growth is slowing over time. Volatility, although still high, has declined significantly and is likely to decrease as derivatives and market creation activity increase.

Why does the reserve of securities matter, Bitcoin case

The argument of the reserve of values ​​is important because it answers the biggest question that surrounds Bitcoin: How much is it worth?

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A stock store is worth what people will pay for it. Although gold has some use as an industrial metal and in jewelry, it would not be sold at US $ 1,300 per ounce according to those uses only. It is worth US $ 1,300 per ounce because people are willing to pay US $ 1,300 per ounce as a value reserve.

If you accept Bitcoin as an emerging value reserve, you can look at the current price and argue that it is cheap. The current limit of the Bitcoin market, the value of all Bitcoin in existence, is US $ 143 billion. The current limit of the gold market is around US $ 7.5 trillion. In other words, Bitcoin is storing around 2% of the gold's wealth.

Let's put it to 10 years: as the digital world becomes a growing part of our lives, and millennials reach their main age range to save, it is not hard to imagine a world in which Bitcoin has 1 / 10 of the value of gold. That would imply a price increase of 500%, from current levels of around US $ 8,000 to around US $ 40,000.

Could the value of Bitcoin be equal to gold? That would suggest a figure of at least US $ 400,000.

Do not listen to people who say that Bitcoin will never be a store of value. In fact, Bitcoin is on the right track, following in the footsteps of all the other significant value stores that have come into the world. There is no guarantee that you will stay on that path, but if you do, the opportunities are endless.