In the midst of a now year-long crypto crash, a growing shadow of doubt has cast itself over the future of Bitcoin (BTC) and the crypto industry more broadly. While the flagship cryptocurrency has fallen more than 75% from its all-time-high in November last year, some experts are beginning to see glimmers of hope for Bitcoin on the horizon.
One such expert is Bloomberg’s lead commodity strategist Mike McGlone, who recently said that despite an enduring downturn, Bitcoin (BTC) will one day outshine gold in terms of value.
According to McGlone, while Bitcoin is currently four times more volatile than gold, it could very well be transitioning to a “higher-beta” version of the yellow metal. In case the words are a bit full on, ‘high beta’ is just finance jargon for an asset that is more volatile than the S&P 500 stock market index.
Using technical analysis, McGlone compares the current trading activity of Bitcoin with Tesla stocks, to point out that Bitcoin might be in the process of forming a bottom, and could soon grow in price heading into 2023.
McGlone added that if the Bloomberg team’s predictions are correct, and the US enters a recession in 2023, the demand for gold and similar ‘store of value’ assets may surge as investors scramble for financial safety. In a sinister addition to this statement, McGlone said that “the period of global economic malaise looks to us like it will be severe and enduring.”
While a statement like this from a world-leading financial strategist comes as welcome news for crypto investors, it might be a little too early for Bitcoin enthusiasts to start getting their hopes up.
On a Friday podcast, prominent crypto analyst Tone Vays said that is most likely going to experience another 13% drop before the price of BTC starts to rise again.
Echoing this sentiment was the pseudonymous analyst ‘Smart Contracter’ who told his 216,000 Twitter followers that Bitcoin’s long enduring decline in value is likely coming to an end.
“I think we are close to the bottom, not quite there yet, but close,” the analyst tweeted.
Sitting firmly on the opposite side of this debate is notorious Bitcoin sceptic and long-running gold-bug Peter Schiff. Speaking to the long-running decline in crypto prices, Schiff declared that the end is nigh for crypto assets.
When looking at whether or not Bitcoin could really become more ‘valuable’ than gold in the long-term Schiff argues that because there isn’t a “physical” side to Bitcoin, it fundamentally lacks value.
Can Bitcoin really become ‘digital gold’?
While many still look at Bitcoin like it’s a ‘currency’ — which comes largely from its namesake as the world’s first ‘cryptocurrency’ — there’s a few good reasons to think of it more like a digital version of gold. If we take a closer look, we can see some of the reasons why a number of analysts and experts have started looking at Bitcoin as a potential alternative to gold.
Much like its shiny yellow counterpart, the total supply of Bitcoin is limited. This makes it a fundamentally scarce asset. The key difference between the two here is, according to the US Geological Survey, only three quarters of all the gold in the Earth’s crust has been mined, with 50,000 metric tons still resting below the ground. If the price of gold skyrockets, mining companies will scramble to extract some of these gold reserves, bringing the price of gold back down.
Bitcoin’s supply is capped at 21 million Bitcoin, and its supply is based on an unalterable line of code, which means that a sudden supply of Bitcoin can never hit the market. This — and a whole lot of market speculation — is what makes the price of Bitcoin so volatile.
Another little-known problem with the precious metal is that it can be quite difficult to verify if gold is real. China’s largest jewellery company called Kingold Jewellery once used 83 tonnes of fake gold to fraudulently secure a US$3 billion contract that eventually forced the company to de-list from the Nasdaq and was done so at a multi-billion-dollar loss for investors.
Fake gold has even made its way into the federal vaults of the United States and investment firms like JPMorgan. Bitcoin advocates say that the cryptocurrency solves this problem by being instantly verifiable and impossible to forge.
The other advantage that Bitcoin has over gold is that it’s easy to store and easy to divide. While gold needs to be stored in expensive, high-security vaults, Bitcoin is stored on the blockchain. This means that it can be securely accessed, transferred and stored by anyone in the world with access to the internet connection.
Bitcoin’s inflation problem
All of this aside, Bitcoin is yet to prove to the world that it is a solid alternative to gold, and a lot of investors around the world seem to share this sentiment. One of the main pain points against the idea of Bitcoin becoming “more valuable” than gold in an investment sense is that it’s yet to prove as ‘robust’ as gold when an economic downturn comes along.
During covid-induced lockdowns, governments from around the world created massive amounts of money and poured it into their economies to keep everything humming along. However, by increasing the amount of money available in the broader economy they simultaneously decreased the purchasing power of that money. This is called inflation.
Because there’s so many extra dollars chasing the same assets this drives the prices of goods and services higher. You can expect to see high levels of inflation in the months and years following enormous economic stimulus packages like the one’s we just witnessed.
Typically, when inflation increases, investors flee from stock markets and look to “safe haven” assets like gold to preserve the value of their money. This is because the value of gold is universally accepted by all countries and there’s a limited supply of it, so no one can make a lot more of it easily.
As Schiff points out, gold remains the far safer option when it comes to a hedge against inflation, and shows that Bitcoin is yet to be viewed as a safe alternative by the broader market.
There are a solid number of macro-factors that point to the benefits that Bitcoin can offer to gold, however the market is yet to take it at its word. Until Bitcoin becomes something that looks less like a tech stock and more like an inflation hedge, it would be hard to call it an alternative to gold. If Bitcoin can grow in price in response to increasing inflation, then that would be a clear sign that investors are treating it more like digital gold.