Article source: Blockchain Simplified
Author: Mu Mu
Recently, Bitcoin has been fluctuating near the $100,000 mark and finally broke through this important 'psychological' barrier today. In fact, Bitcoin's recent surge has already overshadowed gold's similarly large rise. Perhaps as some countries, including the U.S., propose to make Bitcoin a strategic reserve, the corner of gold has already been dug out by Bitcoin:
Ten years ago (December 2014), gold was 250 yuan per gram, and ten years later, it reached 630 yuan per gram, a 2.5 times increase.
Ten years ago (December 2014), Bitcoin was $360 per coin, and ten years later it reached $100,000 per coin, a 277-fold increase.
Several years ago, when the concept of 'digital gold' was first proposed, anyone talking about it would be met with skeptical glances. However, ten years have passed, and Bitcoin is growing at an astonishing rate, to the point where today it is finally beginning to shake the unbreakable position of gold that has lasted for thousands of years...
Gold vs. Digital Gold Bitcoin
Bitcoin is called digital gold because some of its characteristics are similar to gold, but many people still find it hard to relate physical assets to virtual ones. Perhaps this should start from the background of Bitcoin's birth...
1) The background of Bitcoin's birth.
Thousands of years ago (exact date uncertain), gold was already 'hard currency.' Its use as money can be traced back over two thousand years to the Spring and Autumn Period and the Warring States Period, and it has been in continuous use since. People hold and use gold without restrictions from anyone, any institution, or even the state, truly achieving 'private property inviolability.'
Historical records show that in 1717, Isaac Newton in Britain first proposed the gold standard (a monetary system where currency is based on gold, with the quantity of money issued and its exchange value determined by the country's gold reserves), subsequently adopted by various countries. Until 1971, when U.S. Secretary of State Kissinger announced the plan to break away from the gold standard, the currencies of the U.S. and other countries were no longer governed by gold, allowing monetary value to no longer be limited by gold reserves. This means that the modern monetary system can regulate devaluation and inflation as needed.
Later, during the 2008 global financial crisis, the U.S. printed a large amount of money to bail out banks, leading the public to find their money being diluted, which triggered strong dissatisfaction and distrust in the financial system, leaving some textual clues about Satoshi Nakamoto's original intention to create Bitcoin.
This is also why Satoshi Nakamoto left this message on the genesis block of Bitcoin: 'The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.'
The messages left by Satoshi Nakamoto before his sudden disappearance led many to believe that Bitcoin was a response to the 2007-2008 financial crisis. On the P2P Foundation's message board, Satoshi Nakamoto wrote an article in February 2009 introducing Bitcoin.
In the text, they expressed distrust towards reserve banks and concerns about assets: 'We must trust banks to hold our money and transfer it electronically, but they will issue it in the bubble of the credit era, while reserves are minimal. We must trust them with our privacy, preventing identity thieves from draining our accounts. Their huge intermediary fees make small payments unfeasible.'
2) What specific similarities do gold and Bitcoin have?
A, Decentralization.
Gold: A natural resource spread across the Earth, anyone might dig up a gold mine from some corner.
Bitcoin: A public blockchain with nodes spread across the globe, becoming a resource that anyone can participate in mining.
B, Mining
Gold: Mining gold requires workers, mines, equipment, and electricity.
Bitcoin: Bitcoin mining also requires block producers, mining sites, equipment, and electricity.
C, Scarcity.
Gold: A non-renewable natural resource.
Bitcoin: A cap of 21 million coins.
D, Durability
Gold: Physically stable, never rusts.
Bitcoin: The network is robust and secure, and on-chain data is never erased.
E, Anti-counterfeiting.
Gold: Real gold is not afraid of fire
Bitcoin: No amount of investment can alter it
That said, from certain angles, they are very similar, but digital gold still has many advantages that physical gold cannot match, such as:
Bitcoin is very easy to carry; you only need to remember a string of words, while physical gold is particularly heavy.
Bitcoin can verify anti-counterfeiting anytime and anywhere, while physical gold is easily counterfeited using metals of similar density (there have been several cases of gold jewelry adulteration in recent years).
Bitcoin is easier to divide for transactions, while gold is the opposite.
Bitcoin transactions can often reach hundreds of millions of dollars on-chain, with fees only in the tens of dollars, while gold and even modern banking systems find it difficult to achieve such low-cost and rapid asset transfers.
Bitcoin has dug out the corner of gold.
1) Grayscale has repeatedly advertised Bitcoin as a replacement for gold.
Grayscale initiated the first 'Drop Gold' campaign on May 1, 2019, launching ads themed 'Drop Gold,' reminding people that it is time to replace gold with Bitcoin.
In 2020, Barry Silbert, founder of Grayscale and blockchain venture capital firm DCG, tweeted that Grayscale had relaunched its anti-gold campaign 'Drop Gold,' which is now airing on all major networks in the U.S. This is a marketing campaign for Bitcoin, suggesting that 'digital currencies like Bitcoin are the trend of the future,' aiming to make Bitcoin a tool for value storage in the 21st century.
In fact, years ago, Grayscale's ads were largely ignored by most people, including some financial institutions. Some financial tycoons even scoffed at it; for example, the famous BlackRock CEO Larry Fink once bluntly stated that Bitcoin was worthless! However, not long ago, Larry Fink changed his mind, saying: BTC will disrupt traditional finance.
Today, BlackRock has become a Bitcoin whale holding nearly 500,000 BTC.
2) Rapid inflow of spot ETF funds
As early as 2020, JPMorgan Chase, the bank with the largest balance sheet in the U.S., released a report studying the success of the Grayscale Bitcoin Trust (GBTC), which was once one of Bitcoin's biggest critics. However, the report acknowledged that demand for Bitcoin is even affecting mature markets.
JPMorgan points out that demand for Bitcoin could erode demand for gold ETFs. According to this research, the number of people flowing into Grayscale Bitcoin Trust in October 2023 was significantly higher than that for gold ETFs. Therefore, this American bank concludes that GBTC may be able to capture some market share from gold ETFs.
Coinglass: The current total market value of BTC ETFs has exceeded $110 billion.
As expected, after the launch of Bitcoin spot ETFs, there was a significant inflow of funds, while funds in gold ETFs saw a large outflow. Many financial commentators have pointed out that this is not a coincidence; the Bitcoin spot ETF has 'sucked in' a considerable amount of money, a large part of which has come from gold ETFs. Recently, media reported that BlackRock's IBIT asset management scale has surpassed the largest silver ETF, and BlackRock now holds over 500,000 BTC, a scale far exceeding that of the largest silver ETF.
3) Bitcoin ranks among the world's top 10 assets by market value.
As of December 5, according to Companiesmarketcap, Bitcoin has surpassed silver with a market value of $2 trillion, ranking 7th in global asset market value. Currently, Bitcoin's market cap has also exceeded the total market cap of the four largest banks in the world.
Global asset ranking Top 10, source: Companiesmarketcap.
Bitcoin is still over 7 times less than gold's market capitalization of over $15 trillion, which may not seem too difficult to many in the crypto asset circle when considering Bitcoin's growth rate of 277 times in 10 years.
Recently, Anthony Scaramucci, CEO of SkyBridge Capital and a senior hedge fund manager, stated that Bitcoin's market value will ultimately exceed gold's $16 trillion market value. In an interview with CNBC, the founder of SkyBridge Capital described Bitcoin as a high-quality asset never seen in human history over the past 5,000 years.
Scaramucci stated that Bitcoin still has a long way to go to reach gold's $16 trillion market value, but he believes that as regulators approve BTC ETFs, the distance will shrink over time.
4) Bitcoin is playing a 'hedging' role.
Most of the time, gold acts as a hedge against the risk of inflation in many people's portfolios, which can also be seen as a performance of a safe-haven asset. However, the fact is that gold has not outperformed inflation most of the time. But Bitcoin, which has consistently hit new highs, has a fixed supply limit and halves every four years, seems to have never let anyone down in this regard.
Due to widespread consensus, gold has very low volatility, while Bitcoin is quite the opposite. Therefore, while Bitcoin has higher growth potential, it also bears higher risks. However, Bitcoin's volatility is gradually decreasing, and it is genuinely becoming a potential 'hedging tool' for high-inflation countries...
Recently, a new report from the International Monetary Fund (IMF) titled 'A Primer on Bitcoin Cross-Border Flows' indicated that BTC has become a necessary financial tool for preserving wealth in times of financial instability. The analysis also pointed out that on-chain Bitcoin transactions, recorded on the blockchain and offering higher security, are often larger than off-chain transactions. This suggests that the powerful security features of blockchain technology typically protect larger financial interests.
The report author states that Bitcoin transactions provide individuals in high-inflation countries with a way to stabilize savings and participate in global commerce in a way that cannot be achieved with local currency.
From another perspective, when missing out is also seen as a 'risk,' Bitcoin, as an 'alternative asset,' is added to many investors' portfolios, considering it as a hedge against the risk of not being able to timely enter the future Web3 technology or missing out on crypto assets.
When the crypto market worsens, some people choose to exchange high-risk altcoins for the more stable and lower-risk Bitcoin, effectively stopping losses while avoiding the risk of missing out. Therefore, Bitcoin is often used to hedge against the high risks brought by altcoin assets.
Summary.
In fact, it is not surprising that Bitcoin is gradually eroding gold's market share; the relationship between 'digital gold' and 'gold' is akin to that between 'digital payment' and 'paper currency.' Times are changing, the usage of paper currency is decreasing, and ancient gold may not meet everyone's needs, hence Bitcoin fills this gap. As for whether Bitcoin can gradually surpass gold, that remains to be seen over time.
