Why Cryptos Will Not Replace Gold As A Store Of Value

GoldCore's picture

Why Cryptos Will Not Replace Gold As A Store Of Value

- Gold versus Bitcoin: The pro-gold argument takes shape
- Why cryptocurrencies will not replace gold as a store of value
- Similarities between crypto and gold but that does not make them substitutes
- Gold remains a highly liquid market, cryptocurrencies continue to be fragmented and difficult to spend
- Bitcoin  does not make it an effective hedge against stocks
- Gold coins and bars cannot be hacked and vaults are insured

This weekend saw bitcoin shoot up over $8,000 and Bloomberg covered how some preppers were turning to bitcoin over gold. Does this mean it's all over for gold? Is it set to be supplanted as a safe haven by crypto currencies?

Hardly. People read such information and continue to believe that gold and cryptocurrencies are substitute assets. They are not. So why are they so often pitched against one another?

Bitcoin and its contemporaries clearly have a role to play, the volume of demand demonstrates this and the technology is powerful. But, that role is not as a replacement for gold as a store of value.

Risk Hedge sums it up saying:

"Despite what the crypto-evangelists will tell you, digital tokens will never and can never replace gold as your financial hedge."

Risk Hedge provided a great summary of the major flaws and differences in the gold versus crypto debate and the six reasons are listed below.

#1: Cryptocurrencies Are More Similar to a Fiat Money System Than You Think.

The definition of “fiat money” is a currency that is legal tender but not backed by a physical commodity.

Since the United States abandoned the gold standard in the 1970s, this has been the case with all major currencies, including the US dollar.

Ever since then, US money supply has kept increasing, and so has the national debt. In contrast, the dollar’s purchasing power has been on the decline.

Take a look at this historical gold price chart.

The huge spike in gold prices started right around the time when the Bretton Woods agreement collapsed in 1971 and US paper dollars couldn’t be converted to gold anymore. A clear sign of the decline in the dollar’s purchasing power since the move into a pure fiat money system.

It’s clear that cryptocurrencies partially fit the definition of fiat money. They may not be legal tender yet, but they’re also not backed by any sort of physical commodity. And while total supply is artificially constrained, that constraint is just... well, artificial.

You can’t compare that to the physical constraint on gold’s supply.

Some countries are also exploring the idea of introducing government-backed cryptocurrencies, which would take them one step closer toward fiat-currency status.

As RussiaIndia, and Estonia are considering their own digital money, Dubai has already taken it one step further. In September, the kingdom announced that it has signed a deal to launch its own blockchain-based currency known as emCash.

So ask yourself, how can you effectively hedge against a fiat money system with another type of fiat money?

#2: Gold Has Always Had and Will Always Have an Accessible Liquid Market.

An asset is only valuable if other people are willing to trade it in return for goods, services, or other assets.

Gold is one of the most liquid assets in existence. You can convert it into cash on the spot, and its value is not bound by national borders. Gold is gold—anywhere you travel in the world, you can exchange gold for whatever the local currency is.

The same cannot be said about cryptocurrencies. While they’re being accepted in more and more places, broad, mainstream acceptance is still a long way off.

What makes gold so liquid is the immense 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 ever mined is about $7.8 trillion.

By comparison, the total size of the cryptocurrency market stands at about $161 billion as of this writing—and that market cap is split among 1,170 different cryptocurrencies.

That’s a long shot from becoming as liquid and widely accepted as gold.

#3: The Majority of Cryptocurrencies Will Be Wiped Out.

Many Wall Street veterans compare the current rise of cryptocurrencies to the Internet in the early 1990s.

Most stocks that had risen in the first wave of the Internet craze were wiped out after the burst of the dot-com bubble in 2000. The crash, in turn, gave rise to more sustainable Internet companies like Google and Amazon, which thrive to this day.

The same will probably happen with cryptocurrencies. Most of them will get wiped out in the first serious correction. Only a few will become the standard, and nobody knows which ones at this point.

And if major countries like the US jump in and create their own digital currency, they will likely make competing “private” currencies illegal. This is no different from how privately issued banknotes are illegal (although they were legal during the Free Banking Era of 1837–1863).

So while it’s likely that cryptocurrencies will still be around years from now, the question is, which ones? There is no need for such guesswork when it comes to gold.

#4: Lack of Security Undermines Cryptocurrencies’ Effectiveness.

Security is a major drawback facing the cryptocurrency community. It seems that every other month, there is some news of a major hack involving a Bitcoin exchange.

In the past few months, the relatively new cryptocurrency Ether has been a target for hackers. The combined total amount stolen has almost reached $82 million.

Bitcoin, of course, has been the largest target. Based on current prices, just one robbery that took place in 2011 resulted in the hackers taking hold of over $3.7 billion worth of bitcoin—a staggering figure. With security issues surrounding cryptocurrencies still not fully rectified, their capability as an effective hedge is compromised.

When was the last time you heard of a gold depository being robbed? Not to mention the fact that most depositories have full insurance coverage.

#5: Hype and Speculation Continue to Drive Cryptocurrencies’ Value.

Since the beginning of the year, the value of Bitcoin has more than quadrupled—a tremendous spike in value that has sent investors rushing to invest in cryptocurrencies. But could this be nothing more than a market bubble?

One of the world’s most successful hedge fund managers, Ray Dalio of Bridgewater Associates, certainly seems to think so.

In September 2017, he told CNBC, “It's not an effective store hold of wealth because it has volatility to it, unlike gold. Bitcoin is a highly speculative market. Bitcoin is a bubble.”

The spike in Bitcoin prices seems to only lend credence to this view. With such an extreme degree of volatility, cryptocurrencies’ value as a hedge is questionable. Most people buy them for the sole reason of selling them later at higher prices.

This is pure speculation, not hedging.

#6: Cryptocurrencies Do Not Have Gold’s History as a Store of Value.

Cryptocurrencies have been around for less than a decade, whereas gold has been used as a store of value for thousands of years. Because of this long history, we know for a fact that stocks and bonds have low or negative correlations with gold, particularly during periods of economic recession. This makes gold a powerful hedge.

What little data we have on cryptocurrencies does not show the same. Consider this year alone: while the US stock market continues to run record highs, the same goes for Bitcoin.

It’s true that gold has also gone up, but the correlation has been very low and, during times of recessions, tends to swing to the negative side, as you can see in the graph below.

Since 2010, there have been 15 times where the S&P 500 has seen drops of 5% or more. Out of those 15 stock market downturns, Bitcoin has been down for 10 of them.

How is that a good hedge?

Read the original article here


Related Content

Millennials Can Punt On Bitcoin, Own Gold and Silver For Long Term

Gold Is Better Store of Value Than Bitcoin – Goldman Sachs

Bitcoin and Gold – Outlook and Safe Haven?

News and Commentary

Gold falls on pressure from stronger dollar, rate hikes in focus (Reuters.com)

Asian Stocks Advance; Dollar, Treasuries Steady (Bloomberg.com)

Gold, Euro Slump As Merkel Admits “New Elections Are The Better Way” (ZeroHedge.com)

Yellen Says She’ll Leave Fed Once Powell Sworn in as Chair (Bloomberg.com)

No EU deposit insurance if bad loans not cut: ECB's Draghi (Reuters.com)

Source: Bloomberg

Gold Drops To Key Technical Support After $2 Billion Purge (ZeroHedge.com)

Gold is rising despite threat of higher interest rates - Rickards (DailyReckoning.com)

Thorne, Magic Money, and Cyberbucks: Three pre-Bitcoin monetary experiments (JPKoning.Blogspot.ie)

The Fed Plans For The Coming Recession - Next-Generation Crazy (DollarCollapse.com)

ECB wants to end deposit protection & offer savers 'appropriate amount' of their own money (RT.com)

Gold Prices (LBMA AM)

21 Nov: USD 1,280.00, GBP 967.04 & EUR 1,090.69 per ounce
20 Nov: USD 1,292.35, GBP 974.82 & EUR 1,096.43 per ounce
17 Nov: USD 1,283.85, GBP 969.31 & EUR 1,088.19 per ounce
16 Nov: USD 1,277.70, GBP 969.01 & EUR 1,085.53 per ounce
15 Nov: USD 1,285.70, GBP 976.62 & EUR 1,086.29 per ounce
14 Nov: USD 1,273.70, GBP 972.47 & EUR 1,086.59 per ounce
13 Nov: USD 1,278.40, GBP 977.59 & EUR 1,097.89 per ounce

Silver Prices (LBMA)

21 Nov: USD 17.00, GBP 12.85 & EUR 14.50 per ounce
20 Nov: USD 17.15, GBP 12.94 & EUR 14.56 per ounce
17 Nov: USD 17.09, GBP 12.95 & EUR 14.49 per ounce
16 Nov: USD 17.04, GBP 12.92 & EUR 14.48 per ounce
15 Nov: USD 17.12, GBP 13.00 & EUR 14.45 per ounce
14 Nov: USD 16.94, GBP 12.92 & EUR 14.45 per ounce
13 Nov: USD 16.93, GBP 12.93 & EUR 14.53 per ounce


Recent Market Updates

- Money and Markets Infographic Shows Silver Most Undervalued Asset
- Is New Fed Chief A “Swamp Critter Extraordinaire”?
- Deepening Crisis In Hyper-inflationary Venezuela and Zimbabwe
- UK Debt Crisis Is Here – Consumer Spending, Employment and Sterling Fall While Inflation Takes Off
- Protect Your Savings With Gold: ECB Propose End To Deposit Protection
- Internet Shutdowns Show Physical Gold Is Ultimate Protection
- Gold Coins and Bars Saw Demand Rise 17% to 222T in Q3
- Prepare For Interest Rate Rises And Global Debt Bubble Collapse
- Platinum Bullion ‘May Be One Of The Only Cheap Assets Out There’
- World’s Largest Gold Producer China Sees Production Fall 10%
- German Investors Now World’s Largest Gold Buyers
- Gold Price Reacts as Central Banks Start Major Change
- Why Switzerland Could Save the World and Protect Your Gold

 

Important Guides

For your perusal, below are our most popular guides in 2017:

Essential Guide To Storing Gold In Switzerland

Essential Guide To Storing Gold In Singapore

Essential Guide to Tax Free Gold Sovereigns (UK)

Please share our research with family, friends and colleagues who you think would benefit from being informed by it.

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ReturnOfDaMac's picture

"Does this mean it's all over for gold?"  ANSWER:  Yes, it does.  Doesn't mean precious is going to 0, just means you will not get great gains with shiny.  Gold is too easily controlled by central banksters.  Crypto ... not so much.  Some people are so stuck in their own "beliefs" that they refuse to accept "reality", these folks will cost you real profits.  It is painfully, abundantly, and obviously, clear that those seeking monetary freedom from CB's, are finding an electronic ally in BTC.  And BTC is responding.  Why fight it when you can profit by it?  When I see somthing that works, and it makes sense WHY it works, I quit fighting a losing battle and start winning.  Just do not understand some people at all, I guess thats why I don't lose often.

Golden Phoenix's picture

If you turned the BTC chart upside down and told them it was a gold miner oldbugs would buy the shit out of it.

Ben A Drill's picture

Bitcoin is making gold bugs jealous, that's all.

Yellow_Snow's picture

GoldSores 'PM pumpers' at it again... Endlessly bashing crypto's since Bitcoin was $20...

They are desperate to coddle the few remaining 'oldbugs' that still believe their 'doom porn'.

Scared as hell that these few remaining will tire of endless GoldSores propaganda hit pieces

Pearson365's picture

tmosleys brain got transplanted in  you.

Golden Phoenix's picture

He wasn't using it anymore anyway.

topshelfstuff's picture

but TPTB needs a manner to absorb Investment Money to prevent this money to buy gold or other PM's, hence Bitcoin and the Crypto craze supported and promoted via the controlled MSM & Tech Ind

bcking's picture

This article makes me want to sell all my gold for more Bitcoin. I suspect that I'm right. The government won't surrender control of the gold and silver markets till the final days and God knows when that will be. Bitcoin is a true free market. No naked short selling. Thank God. And the CME is so full of shit. 

gaoptimize's picture

"...and vaults are insured against theft."  Probably except Governments and all bets are off when SHTF.

Has anyone heard from Sprott whether the Canadian Mint has assured them, and allowed them to verify, that their 400 oz. GDBs aren't filled with tungsten?

ClowardPiven2016's picture

Why gold is better than crypto
Brought to you by GOLDCORE

But truth be told...I’ve purchased a few ounces with crypto profits

atlas_crumbles's picture

Bitcoin is a better value of storage. Its mobile, quickly divisible, invisible, limited M2, a challenge to seize.

Gold needs to be buried, melted to divide up, not mobile, very visible, easily siezed unless you buried it, has a unknown M2.

Two Theives and a Liar's picture

We all know Gold is Money.

The Crypto space is new, historic and the details are getting worked out. 

The folks that think it's "going away" must be the same folks that still think "the Internet is a fad".

WTF is the problem with trying to wrap your crusty brains around this??

This article is plainly designed to sell metal at the expense of what they see as competition. It's not. Just comes off as desperate. The authors should think about that. 

 

The Divided Stoopids of DuhMerica's picture

LOL Imagine that...

A Au article ripping on crypto put out by someone/a group pushing their dead rocks with every thing to lose.

A sad and desparate attempt to stay relevent, all the while the rest of the world adopts and speeds towards change and the future.

Meanwhile the oldbug/goldbug losers refuse to accept and get left behind holding their bags.

Pathetic.

JailBanksters's picture

Bitcoin has no vault, no security guards watching it, just a computer with virus scanner.

Dollar Bills are stored in a vault, with no security guards.

Gold is stored in a vault guarded by men with big guns.

 

screw face's picture

...what fucking grid.

itsaugood's picture

 

Gold is real cryptos are not. When asked about the fact that bitcoin is backed by nothing, the typical btc advocate response is that bitcoins' value is in the"the block chain", or "the network". That is ridiculous, like saying that the accounting software that a business uses to keep track of its money has more value than the actual money itself. Or like saying that your receipt from a transaction is more valuable than the money used in the transaction. Real money, and its value, does not need to rely on the fact that its use history may, or may not, be recorded in a ledger somewhere. Point is, if bitcoin were real money it would not need to be tied to something else (the block chain) to get its value. Or to put simply, if it weren't for the block chain, bitcoin would have zero value. 

If it wasn't for BTC there would be no use for BTC

Golden Phoenix's picture

<Without computers there'd be no use for the internet.

Um, ok, whatever.

 

Justin Case's picture

Bitcoin was $3 in 2011 and now $8,300 – a truly remarkable rise. Bitcoin could be an excellent investment and that is proving to be the case. But Bitcoin has nothing to do with wealth preservation. Just like with paper money, there is no tangible asset backing it. Also, cryptocurrencies are totally dependent on an electronic world and the internet. So whilst Bitcoin could continue to go up in a speculative frenzy, it will never replace the only money which has survived for 5,000 years. Bitcoin is only one of many cryptocurrencies. New ones are being launched continuously and thus created in a similar fashion to how paper money is printed, thus without an underlying service or exchange of goods. The one major advantage that Bitcoin has and which makes it so popular is that is not controlled by governments and can therefore not be manipulated by them. If cryptocurrencies become too successful that could of course change.

Liberaldisdain's picture

LOL. "What a bunch of maroons." ~ Bugs Bunny

unplugged's picture

Bitcoin is nothing more than a DERIVATIVE OF FAKE-AS-FUCK-FIAT-SHITPAPER !!

ITS NOT EVEN THE FAKE-AS-FUCK-FIAT-SHITPAPER ITSELF !!

Places your bets.

Good luck.

VWAndy's picture

 Welp its not what Im interested in trading my labor for.  BTFD and sell the highs. Good luck.

Two-bits's picture

I have gold and silver, paid my hard earned fiat for it. It will never see out from the bottom of the lake during my lifetime. 

Cryptos are a different hedge. Don't want to put your dollars into crypto?

Pick up loose change for free, and put it in the jar. over time, the jar fills.

https://cryptodrip.blogspot.com/

Pearson365's picture

.....first disable your adblocker.   No way I'm doing that.

Two-bits's picture

It is the advertisement dollars that pay for the dripping faucet. You can selectively disable the adblocker for those sites only. 

Thanks for having a look.  

Cheers.

TeamDepends's picture

Very interesting, thanks.  Can't imagine why someone would junk you.

Two-bits's picture

Any cryptocurrency positive post runs the risk of junking. 

Like I said, I have been taught the value of metal my whole life. I have had a couple of nasty boating accidents that I'd rather not speak of. 

That being said, to scoff at free digits that people are putting value into is foolish. I scoffed at bitcoin back when max kaiser was first speaking about it in 2012. What a mistake. But hey, there are other cryptos and other opportunities. Ethereum is one I am heavily looking into. The smart contract aspect is quite brilliant and has potential for numerous uses. I also like the prospect of litecoin and how the bitcoin and litecoin atomic data swap has had some success linking the two cryptos.

But junk away. Some will still come and look. Some will take advantage.

I ask for no money. No skin off my back.

Havoc Squad's picture

This anti-crypto agitprop brought to you by oldbug gold sellers.  Keep buying your gold and waiting while the rest of us build wealth.

Justin Case's picture

Over time, gold bugs become Zen-masters of endurance and patience. Telling them  that they are about to run into “bad luck” will hardly faze them. You might as well tell them that there will be damp weather in England.

Justin Case's picture

Yoar wealth is just an illusion until it is transfered to a tangible asset. Like a stock certificate of Bre-X. It was an asset at one time, now worthless because it is not a store of wealth and neither are cryptocurrencies.

The store-of-value component of cryptocurrencies — which is, at a bare-minimum, a fundamental requirement for safe haven status — is a minuscule part of its value and appreciation. After all, stores of value are just that: stable and reliable holding places of value. They do not create new value, but are finite in supply and are merely intended to hold value that has already been created through savings and productive investment. To miss this point is to perpetuate the very same fallacy that global central banks blindly follow today. You simply cannot create money, or capital, from thin air (whether it be credit or a new cool cryptocurrency). Rather, it represents resources that have been created and saved for future consumption. There is simply no way around this fundamental truth.

Money must have a value other than its use as a medium of exchange. Like barter, it must transfer real value from one party to another. When gold is exchanged for a chair, one person gets a chair, and the other gets gold. Both parties get something of value independent of a future transaction.

The fact that the party receiving gold never uses it as gold, but exchanges it for other goods or services, does not change the nature of the transaction. But if a chair is exchanged for a Bitcoin, the recipient of Bitcoin receives nothing he or anyone else can actually use. The only thing that can be done with Bitcoin is to exchange it for something else.

Badsamm's picture

It’s good to know watching the price collapse around my silver is just an illusion too. I guess you’ll buy my silver at the $45 I paid for my first coin?

Justin Case's picture

If yoar concerned that it will be worthless one day, I can assure you that it will surpass that value in time. You purchased in the hype like many others that didn't know what they were getting into. Many people do little research and just jump all in. This is propelled by greed or fear of missing out on making a fortune, nothing else. 

Even real estate values fluctuate. Just look back in 2007. If you bought just before the collapse you would be negative to real estate as a store of wealth. If you didn't buy at the top, but bought during the collapse, you would have done well. It's good to know when something is over valued or under valued. How do you determine that of Bitcoin? What can you base it on? There's a time to buy and a time to sell. This applies to all assets if you are to make a profit. It's easy, buy low, sell high. Invest in research before you invest yoar money.

it’s simply that an investor should not become involved in a market that he doesn’t understand. Nor should he trust his broker to understand it for him.

Ironically, as long as there have been markets, there have been those who go out on the dance floor without first learning the dance. A great deal of profit will be made by some gold investors, but the majority are likely to leave the floor with empty dance cards.

I paid $3.50 for my first coin. I know gold and silver will have value in 10 yrs. from now, but I'm not so sure about all the cryptos out there.

unplugged's picture

good luck:

https://www.cnbc.com/2017/11/21/tether-hack-attacker-reportedly-steals-3...

and this ain't the first time, and won't be the last time

place your bets

you got to ask yourself a question - do I feel lucky?  well, do ya - punk ?

Golden Phoenix's picture

BTC is up 3,000,000X+ and you're still too busy grabbing yourself by the pussy.

Badsamm's picture

Nobody has ever broken into a house and stole shit

BigWillyStyle887's picture

Cryptos have a valuable niche in todays society of complete government/bank control over our lives for sure, but why do they keep using a gold coin with a large B on it to advertise bitcoin?

Gap Admirer's picture

"Cryptos have a valuable niche in todays society..."

Agreed. So did Beanie Babies in their time. The value is in the speculation gains. Pump-n-dump. A lot of people did great getting in early on bitcoin. Great that they made out. I just hope that the bitcoinistas don't forget to get out before it plummets. Of course, Beanie Babies are still around and have some value to them.

luckylongshot's picture

Imagine a crypto backed by gold- they are not mutually exclusive. It would combine the strengths of both while eliminating the weaknesses.

Jay's picture

Cryptos don't need any backing. Try to "back" a crypto with gold and you've destroyed three of the most important aspects of crypto: 1) It's trustlessness and 2) It's decentralized nature and 3) it's transparency. Back crypto with gold and you must trust that some third party will actually have the gold backing they promise. You must trust that the directors of the company won't loot it. Back crypto with gold and you won't have any practical way to audit the backing. Back crypto with gold and now there's a centralized entity that the govt. can kick the doors down and sieze. Trying to "back" a crypto with gold is like towing your Ferrari around with a camel. 

. . . _ _ _ . . .'s picture

This would not eliminate the weaknesses.
Such a coin could be hacked and still depends upon electricity.

Lloydie's picture

Meanwhile, cryptos continue eating into gold...

carbonmutant's picture

The problem with cryptos is that there is no Exit Strategy if some government hits the kill switch.
When markets start to crash you have a chance to, at least, get some money back.

ShorTed's picture

Gold Core...predicting gold breakout for 10 years.

I guess they gotta talk their book.

DownWithYogaPants's picture

What do they pay off if your gold is stolen?  Bitcoin ? FRNs?  

It's so funny when people talk about keeping YOUR gold in THEIR vault.

I promise I won't cum in your mouth!