“Gold Price Soaring Again! Breaking Through 700 Yuan/Gram” – This year, people from all walks of life have been discussing the “craziness” of gold prices. But what many people may not know is that another “gold,” called “digital gold” or Bitcoin, has surpassed 500,000 yuan per coin. Some may argue that it’s difficult to compare them due to different units, but let’s look at the following numbers: 10 years ago (2014), gold was 250 yuan/gram, and now it’s 700 yuan/gram, an increase of 2.8 times in 10 years. 10 years ago (2014), Bitcoin was $500 per coin, and now it’s $70,000 per coin, an increase of 140 times in 10 years.
Years ago, when the concept of “digital gold” was first introduced, almost everyone viewed it with skepticism. However, over the past 10 years, Bitcoin has grown at an astonishing rate, to the point where it is finally starting to challenge the unbreakable position of gold that has lasted for thousands of years.
1) Bitcoin vs. Gold
Bitcoin is referred to as “digital gold” because it shares some similarities with gold, but many people still find it difficult to associate physical and virtual assets. Perhaps we should start with the background of Bitcoin’s creation…
1) Background of Bitcoin’s Creation
Thousands of years ago (exact date uncertain), gold became the “hard currency.” It was used as a form of currency as early as the Spring and Autumn Period in ancient China, and it has been used ever since. Holding and using gold is not restricted by anyone, institution, or even country, truly ensuring “private property rights.” Historical records show that in 1717, Sir Isaac Newton proposed the gold standard (a monetary system where the amount of currency issued and its exchange value are determined by the country’s gold reserves), which was subsequently adopted by various countries around the world. It wasn’t until 1971, when U.S. Secretary of State Henry Kissinger announced plans to abandon the gold standard, that the currency of the United States and other countries was no longer tied to gold, allowing for currency values to be controlled based on demand, depreciation, and inflation. Later, during the 2008 global financial crisis, the United States printed a large amount of money to rescue banks, leading to public dissatisfaction and distrust in the financial system, which laid the foundation for the creation of Bitcoin by Satoshi Nakamoto. This is why Satoshi Nakamoto left the following message in the genesis block of Bitcoin: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.” The traces of messages left by Satoshi Nakamoto before his sudden disappearance led many to believe that Bitcoin was a response to the 2007-2008 financial crisis. In a post on the P2P Foundation’s message board in February 2009, Satoshi Nakamoto wrote an article introducing Bitcoin. In it, they expressed mistrust of central banks and concerns about assets: “We have to trust banks to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts. Their massive overhead costs make micropayments impossible.”
2) Similarities between Gold and Bitcoin
A. Decentralization: Gold is a natural resource spread across the globe, and anyone can mine gold from any corner of the world. Bitcoin is a public blockchain with nodes distributed globally, allowing anyone to participate in mining.
B. Mining: Gold mining requires workers, mines, equipment, and electricity. Bitcoin mining also requires block producers, mining farms, equipment, and electricity.
C. Scarcity: Gold is a non-renewable natural resource. Bitcoin has a maximum limit of 21 million coins.
D. Durability: Gold has stable physical properties and does not rust. Bitcoin has a robust and secure network, with data on the blockchain never being erased.
E. Anti-counterfeiting: True gold can withstand fire. Bitcoin cannot be tampered with, even with huge investments.
However, despite the similarities, digital gold (Bitcoin) still has many advantages that physical gold cannot match, such as its convenience for storage and transport, ease of verification to prevent counterfeiting, divisibility for transactions, and low transfer costs.
2) Bitcoin Undermining Gold’s Dominance
1) Grayscale’s Ad Campaign: Grayscale launched the “Drop Gold” campaign on May 1, 2019, urging people to replace gold with Bitcoin. In 2020, Grayscale and Digital Currency Group (DCG) founder Barry Silbert announced that they had re-launched the “Drop Gold” campaign, which is now being promoted on major networks in the United States. Initially, many financial institutions, including some financial tycoons, did not take Grayscale’s advertisements seriously. For example, Larry Fink, the CEO of BlackRock, famously stated that Bitcoin had no value. However, Larry Fink recently changed his view, stating that BTC will disrupt traditional finance. BlackRock has now become a Bitcoin whale, holding nearly 30,000 BTC.
2) Inflow of Funds into Bitcoin ETFs: In 2020, JPMorgan Chase, the largest bank in the United States, published a report analyzing the success of the Grayscale Bitcoin Trust (GBTC). The bank, which was once one of Bitcoin’s biggest critics, admitted in the report that the demand for Bitcoin could even impact mature markets like gold ETFs. According to their research, there will be a significant increase in the number of people investing in the GBTC compared to gold ETFs by October 2023. Therefore, the bank concluded that GBTC may capture a portion of the gold ETF market.
3) Rapid Inflow of Funds into Bitcoin ETFs: After the launch of Bitcoin ETFs, a large amount of funds flowed into them, while gold ETFs experienced significant outflows. It is no coincidence that Bitcoin ETFs attracted a large amount of money, much of which came from gold ETFs. It has been reported that BlackRock’s iShares Silver ETF has been surpassed by its iShares Bitcoin ETF, ranking third among all commodity ETFs. Currently, there are 11 Bitcoin ETFs listed on US exchanges, with a total holding of around 840,000 BTC and a market value of nearly $60 billion.
4) Bitcoin’s Global Asset Market Cap Ranking: As of April 23, Bitcoin ranked 9th in global asset market cap, with a market value of 13.5 trillion yuan, just below silver. Bitcoin’s market value has also surpassed the combined market value of the world’s four largest banks.
3) Bitcoin as a Safe Haven: In many cases, gold is included in portfolios as a hedge against inflation and a safe haven asset. However, gold has often failed to outperform inflation. On the other hand, Bitcoin, which has consistently broken new highs, has a fixed supply, and undergoes halvings every four years, seems to have never let anyone down.
Due to the common consensus, gold’s volatility is very low, while Bitcoin’s is quite the opposite. Bitcoin has higher growth potential but also higher risk. However, Bitcoin’s volatility is gradually decreasing, and it is becoming a viable “safe haven tool” for high-inflation countries.
A recent report from the International Monetary Fund (IMF) titled “A Primer on Bitcoin Cross-Border Flows” states that Bitcoin has become a necessary financial tool to preserve wealth in times of financial instability. The analysis also points out that on-chain Bitcoin transactions, which are recorded on the blockchain and provide higher security, tend to be larger than off-chain transactions. This indicates that the powerful security features of blockchain technology often protect larger financial interests.
The report suggests that Bitcoin transactions provide individuals in high-inflation countries with a stable savings option and a way to participate in global commerce that may not be possible with local currencies.
Furthermore, when it comes to risk, adding “alternative assets” like Bitcoin to portfolios is often seen as a way to hedge against the risk of not being able to invest in future Web3 technologies or missing out on cryptocurrency. In a downturn in the crypto market, some people choose to exchange high-risk altcoins for more stable and lower-risk Bitcoin, reducing the risk of staying invested and avoiding the risk of missing out. Therefore, Bitcoin is often used to hedge against the high-risk assets of altcoins.
In conclusion, it is not surprising that Bitcoin is gradually eroding the market share of gold. The relationship between “digital gold” and “gold” is similar to that between “digital payments” and “paper money.” As times change, the use of paper money is decreasing, and old-fashioned gold may not meet everyone’s needs. Bitcoin fills that gap. Whether Bitcoin will eventually surpass gold, only time will tell.
