Last Friday, gold hit a record high, exceeding $2,500 per ounce, while Bitcoin struggled to keep pace. This has led to a debate within the financial community about the fundamental differences between the two assets.
Kashyap Sriram, an experienced trader and analyst, shared his views in response to a post by Lawrence McDonald, a best-selling author. McDonald questioned Bitcoin’s effectiveness as a store of value compared to gold.
He explained that Bitcoin, designed by Satoshi Nakamoto, mimics gold, using “mining” as a term for its proof-of-work system. However, if gold mining ceased, gold would retain its value, whereas Bitcoin would be worthless without its miners. Bitcoin miners keep the network running by adding new blocks to the blockchain; without them, the system collapses.
Furthermore, Sriram criticized the decentralization of Bitcoin mining, pointing out that eleven mining pools control almost the entire network, making it vulnerable. Despite Bitcoin’s large market cap, its mining infrastructure is comparatively small and concentrated.
A study highlighted that five of these mining pools might be under one company’s control, raising concerns about centralization. Comparing historical performance, McDonald noted gold’s maximum drawdown was 21%, whereas Bitcoin’s was much higher at 82%.
Investors now face a choice between Bitcoin and gold as hedges against inflation, with cryptocurrencies presenting higher volatility compared to the more stable industrial demand for gold.
Sriram stated, “Bitcoin’s prime era is over, while gold’s is just starting. Libertarian crypto investors are missing this shift.”
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