Gold Versus Bitcoin: The Pro-Gold Argument Takes Shape

Authored by John Rubino via,

Sound money advocates who love the concept of cryptocurrencies but don’t want to abandon precious metals have been trying to clarify their thoughts of late.

Risk Hedge just helped, with a comprehensive statement of the pro-gold position.

The following is an excerpt. Read the full article here.

All the Reasons Cryptocurrencies Will Never Replace Gold as Your Financial Hedge

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


Here are six reasons why.


#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.


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 Russia, India, 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.

The gold vs bitcoin debate has a long way to run. But if the outcome is a world in which money is what the market - rather than the government - says it is, then hopefully there will be room for both.


IH8OBAMA Pandelis Mon, 11/20/2017 - 14:28 Permalink

Just ask yourself, would you take a job where you are paid in X amount of Bitcoins?  No matter where the value of Bitcoin goes (up or down in relation to the Dollar) you would still recieve the same number of Bitcoins per month.  And, you agree to not quit for at least 5 years.Still think Bitcoin is stable and valuable?  I didn't think so. 

In reply to by Pandelis

Mustafa Kemal IH8OBAMA Mon, 11/20/2017 - 14:39 Permalink

Do you know what a false dichotomy is?Yes, I would not sell my house and buy bitcoin.  But I would put a few K into it on an asymmetric bet.That bet last year has turned into some serious "value" .As for stable, no, its not, but unless something dramatic changes it appear to be Unstable and UP! So, its lack of stablity is of little concern to me.

In reply to by IH8OBAMA

east of eden IH8OBAMA Mon, 11/20/2017 - 14:44 Permalink

Well, let's put it this way. Bitcoin has been around and in the mainstream for what, 5 or 6 years? If you had purchased 50.00 of bitcoin when it was first introduced (and I know this is a stretch, but anyhow), you would now have 14.4 Million dollars. If you had of bought 50.00 worth of gold 6 years ago you would now have 40 dollars in gold.Still think gold is stable? I didn't think so.

In reply to by IH8OBAMA

Justin Case Gap Admirer Mon, 11/20/2017 - 16:21 Permalink

I am adamant that bitcoin is in a bubble that will blow up violently. The handwriting is on the wall, there is no value to bitcoin. The only reason why people are buying bitcoin is that it’s already gone up so much, and this is the mark of a bubble just like tulip bulbs, Florida real estate, and dot com stocks in 1999. Pure speculation right now.

In reply to by Gap Admirer

techpriest IH8OBAMA Mon, 11/20/2017 - 17:26 Permalink

Esp. when you look at the 100 year, 500 year, etc. histories.

My stances is still what it was last year: if a customer asks me to put BTC payment into their e-commerce site, I will put it in. If you want to pay me the dollar equivalent of BTC, I will take it. I'm not putting any other skin in the game.

If you bet on it and won, congratulations. If not, there are plenty of other ways to make money.

In reply to by IH8OBAMA

Bubble Man east of eden Mon, 11/20/2017 - 17:11 Permalink

"Well, let's put it this way. Bitcoin has been around and in the mainstream for what, 5 or 6 years? If you had purchased 50.00 of bitcoin when it was first introduced (and I know this is a stretch, but anyhow), you would now have 14.4 Million dollars. If you had of bought 50.00 worth of gold 6 years ago you would now have 40 dollars in gold." I say if you were smart enough to invest in bitcoin, great for you.  The cryptos have been the best investment in 2017, and congrads for your forward thinking.  I ,unlike many,  do not hate on others for their good fortune.  You took a risk and were rewarded.That said I think there is a huge disconnect between financial asset and money.  Gold is money.  It's purpose isn't as a digital, financial investment.  If you bought an ounce or 1/10 ounce of gold, it will still be an ounce or 1/10 of an ounce of gold 20 years from now.  And it will be worth more in 20 years from now then the dollars value 20 years from now with little risk.  Everything is financialized in 2017.  Stock, bonds, insurance, cryptos, etc, etc.  I think cryptos have a chance of becoming the means we conduct commerce 5 years from now.  But the whole point of gold and silver is to hold some wealth outside of the financial markets. And comparing gold & silver dollar price on 11/20/17 to stocks, bonds, crypto & fiat currency completely misses the whole point of why some of us own them. My 2 cents.

In reply to by east of eden

Bubble Man QueeroHedge Mon, 11/20/2017 - 17:50 Permalink

"Why not bitcoin & gold?"That's not a bad startegy. I have looked into bitcoin for the last couple of years.  Ultimately, it isn't easy enough for a layman like me to understand how you purchase, use, store in clear enough non-tech English to feel comfortable owning.  YET.  Especially the idea of storing bitcoin online or offline?  In your online wallet or offline wallet?  Why some exchanges only let you sell x number of $100's of dollars this day, etc.  Now this may change.  But I am the average non tech savy Joe.  And I'm not alone.Regardless, my point to the author was I do not think comparing physical gold's price to bitcoin's price is relevent.  Both maybe hedges against government fiat currency devaluation.  But one (physical gold) isn't in the digitized financial system.  Bitcoin is.  That is NOT saying bitcoin isnt a good hedge against the usa $$ or may become the currency of the future.  

In reply to by QueeroHedge

QueeroHedge Bubble Man Mon, 11/20/2017 - 22:11 Permalink

>>Ultimately, it isn't easy enough for a layman like me to understand how you purchase, use, store in clear enough non-tech English to feel comfortable owning. Paper wallets my friend, incredibly quick and easy to setup so that hacking is not possible. Your only issue is storing the private key safely. Not easy I admit, but worth it. Go through the hassle now to put 10-20% in crypto and you will be very happy you did in 5 years time. I was saying this 5 years ago too fwiw.

In reply to by Bubble Man

JustUsChickensHere QueeroHedge Mon, 11/20/2017 - 23:35 Permalink

Storing a private key safely .... not too hard if you know about PGP - the only encryption that Snowden has faith in - because it has been secure since 1991, despite the best efforts of the deep state. So how?  Make PGP easy for yourself - use Thunderbird as (one of) the email client. Add the Enigmail add-ond - a friendly GUI that makes PGP easy.SAVE your pgp keyring by sending a backup to one or more email addresses you have - the key ring is already encrypted without any further work when you set things up.  This backup is how you recover from the worst case failure - where .gov has seized all you computer tools and possesions. (multiple email addresses at multiple provides in multiple countries)Now - send yourself PGP encrypted email(s)with the public/private key pair for each Bitcoin address of that 'paper' wallet.Leave the Subject of these emails blank - the Subject is never encrypted and that is an infomation leak. The recovery process is not really hard.So (for example with three email addresses) you then have the keys stored safely in encrypted email - three copies in different countries, and even if you have everything confisfacted in your home jurisdiction, you just need to borrow a computer, install Thunderbird/Enigma. Download a copy of your PGP key ring from one of the three email backups. Read your email with the Bitcoin private keys .. use as normal. Where are the risk points with this?   Memory ... that is the problem.You must always know the passwords to get access to each email. The easy way to ensure this, is do not allow you normal computer to 'save the password' of each email address. Force yourself to always type the password in. Repetition means that fairly soon you will be truly unable to forget these passwords.The same applies to the PGP pass phrase - you always type it, and so will never forget it.  

In reply to by QueeroHedge

Skateboarder Pandelis Mon, 11/20/2017 - 14:34 Permalink

There is something about the physical realm that will never translate into the virtual realm. A gold miner will not go mine gold for you after some head faggot of monetary control somewhere decided it was worth only 50 bucks an ounce. I.E., the minimum value of an ounce of gold is what it takes to mine, refine, coin, distribute, and get it in your hands. There is no such minimum for Bitcoin or any other crypto. What are you going to make that minimum based on? One computation unit, or some bullshit? It doesn't work.The act of computation as the analogy for physical resource extraction is about the stupidest fvcking thing I've heard of.

In reply to by Pandelis

Antifaschistische Pandelis Mon, 11/20/2017 - 17:11 Permalink

I always hated to break it to the gold ain't going away.  ever.   I like gold....but a "golden" currency is NOT in our future.I hate to break it to the bitcoin collectors...cryptos are just another fiat.  different.  sure.  advantages.  yes.  disadvantages.  yes.crypto's should be compared to all other fiats.   not to gold.  not to oil.  not to rhodium.

In reply to by Pandelis

Bubble Man Skateboarder Mon, 11/20/2017 - 17:37 Permalink

"p.s. it's hilarious how Bitcoin's physical image in the world is shown as a gold coin. It should be all black and green text like the Matrix, doogies."I've noticed that too.  Why have a bitcoin look like a gold coin (old us gold dollar). I think this is the main reason TPTB will never ban cash.  So the people have a perception that their digital currency (0,1's) represents money $$$.  Granted that $100 bill may have the purchasing power of $10 bill but it won't be banned for illusion's sake.That said, I'm one of the few holdovers that uses physical cash.  I think if they can make an app where the younger generation can use their smartphone to pay for gas, groeries using cryptos it really isnt that much difference from the illusion your debt card has those 0,1's that represent $$$'s most never see to pay for their gas & groceries.

In reply to by Skateboarder

Winston Churchill Golden Phoenix Mon, 11/20/2017 - 14:39 Permalink

A ledger is merely the representation of the accounting of some actual wealth.Its absolutely not wealth in itself.Everytime time you say ledger you kneecap your own case.My quickbooks is for sale, not the underlying biz,for you only $10m.Its an illogical fallacy,added to which TPTB owns ALL the infrastructure your crypto'srely upon to run,from your computers bios on up.

In reply to by Golden Phoenix

east of eden Winston Churchill Mon, 11/20/2017 - 15:15 Permalink

Where your argument fails, is that everything, other than productive land, water, food and shelter is exchanged on a faith basis. Gold is nice. I love the look of it, the feel of it. There is indeed something very special about it, however, to say that gold or silver in and of themselves will get you anywhere in a crisis is over emphasing their utility. If the system 'crashes', no one is going to sell their land or their house to you for gold, I can guarantee it. At least not in the short term, and in a crisis, it's always the short term you have to worry about.

In reply to by Winston Churchill

Winston Churchill east of eden Mon, 11/20/2017 - 15:33 Permalink

I can assure you from personal experience bribing my way out of a couple of very dodgy situations,that you're talking crap.I would still be rotting in some 3rd world prison,if I had survived.Gold will be your best friend in exactly the worst of the worst situations.Speculate all you want,but I KNOW whats real money at the end of the day.You guys don't know thedifference between credit and money, or an accounting system and actual capital.I'm more concerned with TPTB plans for that accounting system.

In reply to by east of eden

techpriest nope-1004 Mon, 11/20/2017 - 17:36 Permalink

We can all take a breath and look at the market caps. BTC appears very valuable because there are less than the maximum permitted 18 million. If a billion people get into it, adding another $1,000 to BTC, for example, would take $18 billion, or $18 per person. Even a factory worker in China can swing that a few times a year. If it is just 100 million people, we're taking $180 per person, which is something most Americans could come up with out of their monthly pay.

Kinda like the 401ks keeping the markets up because millions are putting in their matched 6% every month. As long as there is a devoted core putting in a chunk of their paycheck every month, BTC will keep rising. But I do agree that this is a function of popularity, as opposed to fundamental value. If the popularity shifts, the price could swing just as violently in the other direction.

In reply to by nope-1004

east of eden YUNOSELL Mon, 11/20/2017 - 15:11 Permalink

Well, in the last 'crisis' gold lost half it's value, in days, as traders sold their gold to cover their losing positions. I"m not saying the same thing won't happen with crypto, however, considering (1) momentum, (2) liquidity, (3) ease of moving money across borders and all the rest, I still say that Cryptos have gold beaten, and the price tells the tale.Try taking a kilo of gold across an international border. You will be stopped, probably arrested, likely have your gold confiscated and end up spending thousands in legal fees to get you out of some third world hell hole jail.Besides, unless and until the Fed, the Comex and the LBMA cease manipulating the price of precious metals, and allow the market to decide the price, you are basically buying into a guaranteed losing proposition.

In reply to by YUNOSELL

crazybob369 east of eden Mon, 11/20/2017 - 15:26 Permalink

"Try taking a kilo of gold across an international border. You will be stopped, probably arrested, likely have your gold confiscated and end up spending thousands in legal fees to get you out of some third world hell hole jail."Maybe, if you try it with a solid kilo bar. Not so hard with a few necklaces/bracelets/watches with a few gold coins in you pocket mixed in with your loose change. Most gold coins still say legal tender.

In reply to by east of eden

AlphaSeraph east of eden Mon, 11/20/2017 - 14:57 Permalink

I'm deeply suspicious that this next crisis will start with a 1 or 2 day market sell off/panic but it will be halted, the exchanges will be closed and the banks will go on "holiday". Markets will be completely closed off, selling (or buying) impossible, cash from the banks either impossible or enormously limited and when the "holiday" is over, 2-4 weeks later, the price of gold will be 8, 10, 12k who will be up 50% measured in current fiat and then hyperinflation will kick off. The banks will close AGAIN, this time for longer and the new IMF based global currency will be deployed, ya know..."to save us all".

In reply to by east of eden

east of eden AlphaSeraph Mon, 11/20/2017 - 15:55 Permalink

YEs, that will probably happen. And so, you have some gold. Who is going to take your gold for 'goods'? THere will be a deficit of fiat in the system. Paper money will disappear faster than a turd in a rainstorm.And those who might accept your gold or silver, if they even believe your are giving them 'the real thing', won't be able to make change.So you have a quarter ounce - do you want to have to spend it on lunch?

In reply to by AlphaSeraph