Manager of the Old Mutual Gold & Silver Fund Ned Naylor-Leyland said that bitcoin is paving the way for a global return of gold. “Marriage” bitcoin and gold was quite logical, given the characteristics and mandate of both.
“Bitcoin was developed explicitly to make it digital gold,” he said.
As William Sueberg of the CoinTelegraph notes, the fund, which opened in April this year, is aimed at allocating up to 5% of the currency, profits from the price increase, to invest again in gold and silver.
Naylor-Neiland is very optimistic about the promoted concept, repeating the position of the honorary chairman of the CME Group Leo Melamed in his desire to attract investors’ attention to the events taking place.
The real importance of bitcoin is not to provide an opportunity for quick and simple payments. The most important thing that bitcoin offers is a new form of healthy money, independent of any authority or government in the world. And this is very important for the world economy. Bitcoin is difficult, not easy money.
Easy money refers to money, the amount of which is easy to increase in case of increasing demand for them. Therefore, if people switch to using copper as money, it is easy to increase the supply of copper and lower its price, it will hurt those who used copper as a means of preserving the value of their savings.
Gold is hard money, because even if the price of gold is rising, it is very difficult for gold miners to increase gold supplies in the world. It is difficult to reduce its cost. Therefore, gold in the long run is a good way to save value.
Bitcoin is much closer to gold. This is the digital equivalent of gold.
Bitcoin deliveries are strictly limited. The release of only 21 million bitcoins is expected. And the code controlling the issuance of bitcoins is decentralized among the tens of thousands of points that control the software of bitcoins. And for change, majority consent is required.
Since all involved parties are interested in maintaining monetary policy in such a way as to maintain the value of money, any changes in monetary policy are unlikely. Even technical changes are almost impossible in bitcoin.
The monetary policy of bitcoin is unchanged, no one can control it, we can simply get the digital equivalent of gold.
And in a sense it’s good, bitcoin has a number of advantages over gold. It is easy to send around the world, more difficult to confiscate than gold. Bitcoin should be interesting to those who believe in the importance of healthy money for society.
Remember the era of the classical gold standard, from 1871 to the outbreak of the First World War. It was a “golden era”, a time of unsurpassed prosperity for humanity around the world. Economic growth was everywhere. Technologies were distributed all over the world.
And it’s not accidental. What allowed the gold standard? Have a means of preserving value that will retain its value in the future. And this gave people an incentive to think in the long term, forcing people to strive to invest in things that would pay off in the long run.
In the case of bitcoin, as soon as you acquire it and save it, you realize that there is a very high possibility for spending, and you will think twice before taking the money lightly.
In addition, bitcoin is important when moving very large quantities and high costs, especially in transactions in which you try to avoid censorship or economic inflation from the central bank. Thus, as a means of preserving the value of bitcoin, it matters.
However, not everyone in the gold mining industry is ready to accept this status quo.
Discussing the decline in profits, BullionVault Research director Adrian Esch said earlier this month that “hype” around bitcoin “distracts” some investors and leads to the fact that gold is on the sidelines.
As previously noted by John Rubino, the defenders of money who love the concept of the crypto currency, but do not want to abandon the precious metals, have recently been trying to clarify their position.
Bitcoin will never replace gold: 6 reasons
Risk Hedge offers the most comprehensive view on this problem: “There are 6 reasons why crypto currency will never replace gold as a reliable means of financial insurance.”
– Fiat money and crypto-currencies –
Crypto currency is more like a system of fiat money than you think. Fiat money is a currency that is a legitimate means of payment, but it is not supported by commodities.
It is clear that crypto-currencies are partially consistent with the definition of fiat money. They can be illegal, but they are also not supported by one or another type of physical commodity. And although the cumulative stock is artificially restricted, this restriction is artificial.
This can not be compared with a physical restriction on the supply of gold.
Some countries are also studying the idea of introducing crypto-currencies, supported by the government, which will make them one step closer to the status of the currency.
As Russia, India and Estonia are considering using their own digital money, Dubai is already one step ahead in this matter. In September, the kingdom announced the signing of an agreement to create its own crypto currency database, known as emCash.
So how can we effectively hedge against a phiatic monetary system with another type of fiat money?
– Liquidity –
Gold has always had and will be an affordable liquid market.
The asset is useful only if other people are willing to trade it in exchange for other goods, services or assets.
Gold is one of the most liquid assets. You can convert it into cash, its value is not determined by national borders. Wherever you travel, you can always exchange gold for any local currency.
The same can not be said about crypto-currencies. Despite the fact that they are accepted in an increasing number of regions, the crypto-currency is still far from being widely recognized. What makes gold so liquid is the huge size of its market. The larger the market for an asset, the more liquid it is. According to the World Gold Council, the total value of all gold mined from the fields today is $ 7.8 trillion.
For comparison, the total market size of the current currency is about $ 161 billion, and this market capitalization is divided between 1,170 different crypto-currencies.
This is a rather long way to become the same liquid and widely recognized commodity as gold.
– A large number of crypto-currencies –
Most crypto currency will be destroyed.
Many veterans of Wall Street compare the current growth of the crypto-currency with the Internet in the early 1990s.
Most of the shares that grew on the crest of the first wave were destroyed after the burst of the dot-com bubble in 2000. The collapse in turn led to the emergence of more resilient Internet companies, such as Google and Amazon, which are doing well to this day.
The same will happen with crypto-currencies. Most of them will be destroyed at the first serious correction. Only a few will become the standard, and no one knows which of those that exist at the moment.
And if large countries like the US create their own digital currency, they will most likely make competing “private” currencies illegal. This is no different from the fact that the issued private banknotes are illegal.
So, although there is a chance that the crypto currency will disappear in a few years, the question is which of them? In such conjectures there is no need when it comes to gold.
– Low security –
The lack of security undermines the effectiveness of crypto currency.
Security is a major drawback to the community’s crypto currency. Now almost every month there are news of a major hacking of exchanges with bitcoins.
In the past few months, a relatively new crypto-currency world has become a target for hackers. The total amount of the stolen amount reached $ 82 million.
Bitcoin, of course, was the most important goal. Based on current prices, only one robbery in 2011 led to the fact that hackers stole more than $ 3.7 billion bitcoins – a staggering figure. Since the security problems associated with crypto-currencies have not yet been completely eliminated, the ability of a currency to effectively hedge is questionable.
The debate about gold and bitcoin is a long process. But if the result is a world in which money is what the market dictates, not the government, then soon there will be a place for both.
– Speculative “bubble” –
Since the beginning of the year, the cost of bitcoin has grown almost 12 times – this is a huge impetus for price growth, thanks to which investors are in a hurry to invest in crypto-currencies.
But can this be nothing more than a “bubble” in the market?
It seems that one of the most successful hedge fund managers in the world – Ray Dalio of Bridgewater Associates – thinks so.
In September 2017 he told CNBC: “This is not an effective means of storage, because it has volatility, unlike gold Bitcoin – a very speculative market Bitcoin – a..” Bubble “.
The sharp change in prices only confirm this view.
With such an extraordinary degree of volatility in the value of hedging cryptocurrency doubt. Most people buy them just for the reason that they sell them later at a higher price.
This is pure speculation, not hedging.
– The lack of stories –
cryptocurrency have no history in the ex Chiyo of gold.
They have been around for decades, while gold is used as a storage facility for thousands of years.
Because of this long history, we know that stocks and bonds have a low or negative correlation with gold, especially during periods of economic downturn.
This makes gold a powerful defense.
On kriptornku say the same can not. Consider only this year: while the US stock market continues to record record highs, the same applies to bitcoin.
It is true that gold has also grown, but the correlation was very low and in times of recession tends to move in a negative direction.
Since 2010, there have been 15 cases when the S & P500 changed by 5% or more. Of these 15 stock market downturns, bitcoin fell in 10 cases.