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- Many Bitcoin analysts and experts have often remarked about Bitcoin’s advantages that make it a safe-haven asset.
- Bitcoin overrides dollars or other currencies for its predictable and limited quantity.
- Bitcoin scarce like Gold, it requires the tedious process of mining to create more bitcoin.
Many Bitcoin analysts and experts have often remarked about Bitcoin’s advantages that make it a safe-haven asset. Further, the most famous cryptocurrency has also been predicted to compete with age-old Gold in this regard.
In a series of tweets on Saturday, the crypto trading platform, Coinbase attempted to explain the historical context of Gold and the impact of Bitcoin as a future safe-haven asset. Bitcoin overrides dollars or other currencies for its predictable and limited quantity. It is scarce nature very similar to that of Gold’s, says the platform.
In May 2020, #Bitcoin will experience its third “Halving.” Bitcoin is a digital asset with a fixed & predictable supply, unlike dollars. Bitcoin is designed to be scarce, like gold. Here’s what that means and why it matters in historical context: https://t.co/CLXp7Okb04
— Coinbase (@coinbase) February 7, 2020
Historically, currency notes were directly accountable with Gold. But the inability to produce more Gold at will led to breaking the gold standard in 1971. This means that not all money distributed as currency notes is directly pegged to Gold.
Every reserve bank has some amount of gold reserves but this is not even close to the amount of money in circulation. This change in the economic structure changed the price of Gold from a fixed $35/oz to a whopping $1500/oz currently. The reason why Gold is valuable is that it is scarce and not easily obtainable.
Until 1971, money was directly pegged to gold. As gold is scarce, governments can’t simply produce more for political goals. So the gold standard was broken, the dollar’s value has declined, and gold has risen from a fixed $35/oz to over $1500/oz today. pic.twitter.com/aHLlgtiwqI
— Coinbase (@coinbase) February 7, 2020
Gold has been a store of value primarily because of its scarcity. While gold is shiny and can be useful in electronics, so are other metals, like copper. Yet copper is only a fraction of the value of gold. There is an inverse relationship between scarcity and commodity value. pic.twitter.com/say3cqki11
— Coinbase (@coinbase) February 7, 2020
This is where Bitcoin comes in. Bitcoin scarce like Gold, it requires the tedious process of mining to create more bitcoin. It further has a major advantage of being able to be transported over communication lines.
Coinbase claims that this might have been one of the original intentions of Satoshi Nakamoto, the anon founder of Bitcoin. In fact, Bitcoin might have been created to rival Gold.
Imagine that there was a metal as scarce as gold, that has one special advantage: it can be transported over a communications channel. In 2010, Satoshi and other curious netizens would wonder, could something like this ever become a store of value to rival gold? pic.twitter.com/hqlxRDWi9r
— Coinbase (@coinbase) February 7, 2020
Bitcoin, like gold, is scarce. Producing new bitcoin requires a great deal of “proof of work” by a process called mining. In order to understand bitcoin’s scarcity, one must understand bitcoin’s supply curve. pic.twitter.com/wJNi86h20O
— Coinbase (@coinbase) February 7, 2020
Bitcoin has a max supply of 21 million coins out of which 18 million exist currently. The May 2020 halving will reduce the mining reward from 12.5 bitcoin to 6.5. But even after two other halvings previously, BTC mining is at an all-time high. The more the mining, the higher is the security levels.
Bitcoin has precisely a max supply of 21 million coins, with ~18 million existing currently. Nearly every ten mins, 12.5 new bitcoins are minted as a reward for miners. After May 2020, in an event called the “Halving”, mining rewards will cut in half to 6.25.
— Coinbase (@coinbase) February 7, 2020
Despite two Halvings in the past that limited mining rewards, mining power (hashrate) has recently reached all time highs. Mining plays a critical role in Bitcoin security. As total supply edges toward 21M, network security (hashrate) has increased in parallel. pic.twitter.com/WbxFuzPfBS
— Coinbase (@coinbase) February 7, 2020
This provides Bitcoin an advantage over Gold. It is possible to ascertain how much bitcoin exists, whereas the same is not possible for Gold. Anyone with a computer can run a full node to access this information. The platform reveals that currently, 52k nodes are in operation, all of which can verify a 1.7% drop in BTC supply rate after the halving in May.
Mining ensures that Bitcoin maintains advantages over gold. No one knows with perfect certainty how much gold exists above ground; there is no way to independently verify the gold supply. With Bitcoin, anyone with even the simplest computer can verify all bitcoin in existence.
— Coinbase (@coinbase) February 7, 2020
To independently verify the validity of Bitcoin transactions, anyone in the world can run a full node. Currently, there are over 52k nodes operating in 96 countries verifying Bitcoin. pic.twitter.com/k1FvrWaili
— Coinbase (@coinbase) February 7, 2020
Full nodes can verify that in May 2020, Bitcoin supply issuance will drop to a rate of ~1.7% annually. A term known as stock to flow (or “S2F”) also measures new supply rate over total supply. After the Halving, Bitcoin’s scarcity as measured by S2F will be on par with gold’s.
— Coinbase (@coinbase) February 7, 2020
The platform then explains how, along with scarcity, Bitcoin, possess other qualities that make it desirable for buyers. Volatility, which is a major issue in the present crypto world, has statistically been decreasing over the years.
Demand is as important as supply, and stock to flow forecasts for price will certainly fail if bitcoin does not possess useful qualities beyond supply scarcity. Not to mention, quantitative forecasts will falter in the reality of obstacles such as bitcoin volatility. pic.twitter.com/n3b1S06Cdp
— Coinbase (@coinbase) February 7, 2020
Compared to gold, Bitcoin is significantly more volatile. However, BTC volatility is dampening over the years. According to @coinmetrics, avg. 180d volatility has declined over the past decade: from 6.4% (2010-2015) down to 3.7% (2015-2020).
— Coinbase (@coinbase) February 7, 2020
“Valuation requires comparing one asset to another with varying volatility.” States the platform. The demand and supply forces, especially for fiat money, are plagued by global recession or hyperinflations.
So what gives gold or bitcoin value, in a world without pegged exchange rates? Valuation requires comparing one asset to another with varying volatility. The same holds true for fiat money itself, especially as central banks increase or (rarely) contract money supply.
— Coinbase (@coinbase) February 7, 2020
Economies can sometimes prosper as money supply grows from independent central banking. On the other hand, economic history is fraught with hyperinflation events, whereby money supply overwhelms demand.
— Coinbase (@coinbase) February 7, 2020
This phenomenon has driven demand for gold especially in times of heightened uncertainty. Recently, economic fear as measured by the Global Economic Policy Uncertainty Index is reaching ATHs, alongside gold’s value indexed against major fiat currencies (exempting USD). pic.twitter.com/miZaXEQTcu
— Coinbase (@coinbase) February 7, 2020
This past decade, both #Bitcoin and gold have been viable safe havens amid global economic uncertainty. Armed with a myriad of technological advantages and accelerating development, Bitcoin is digital gold. https://t.co/CLXp7Okb04
— Coinbase (@coinbase) February 7, 2020
Thus Gold is demanded more when there is more uncertainty in the world. Therefore, with its technological advancements and upcoming developments, Bitcoin can be considered digital Gold.
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