In the ongoing debate over whether Bitcoin or gold is the optimal store of value, Jurian Timmer, Director of Global Macro at Fidelity, offers new insights that bring this controversial topic back into the spotlight.
According to Timmer, both Bitcoin and gold are viewed as hedging assets against the erosion of monetary value resulting from expansionary fiscal policies that increase the money supply, which in turn leads to inflation.
This correlation becomes clear when comparing the growth rate of the money supply (M2) over a decade with the Consumer Price Index (CPI).
Bitcoin and gold as a store of value:
Timmer posits that for both Bitcoin and gold to prove their worth as a sustainable store of value, there must be sustained growth in monetary aggregates beyond the general trend.
But he points out that this condition has not yet been met.
During the COVID-19 pandemic, we saw a significant increase in the money supply, but this increase was quickly offset by the US Federal Reserve's tight monetary policies.
This means that the conditions for Bitcoin to flourish as an effective alternative to gold have not yet existed.
When talking about Bitcoin, Timmer prefers to refer to it as “gold 2.0” rather than “exponential gold,” due to its unique combination of traditional monetary properties and the advanced technology that characterizes its network.
The debate about Bitcoin's ability to outperform gold as a store of value dates back to the time when the cryptocurrency gained widespread popularity and global reach.
Since the first Bitcoin transaction, which was linked to a major financial crisis, debate has continued over whether Bitcoin can outperform gold in the future.
Impact of ETFs on Bitcoin:
The launch of Bitcoin exchange-traded funds (ETFs) has fueled this debate, as the cryptocurrency is now available to hundreds of millions of investors in traditional ways.
This development has increased discussion about the possibility of Bitcoin overtaking gold in terms of market capitalization.
Currently, the market cap of gold is over $15.6 trillion, while the market cap of Bitcoin is around $1.33 trillion.
For Bitcoin to match gold's market cap, it would need to grow at a rate of 11.72 times, which means the price of Bitcoin would need to rise to about $790,000 per coin.
These numbers highlight the current large gap between the two assets, and highlight the challenges that Bitcoin faces in achieving gold’s safe-haven status.
However, debate continues among investors and experts about whether or not Bitcoin will be able to achieve this feat in the near future.