Author: Mu Mu

Recently, Bitcoin has been fluctuating around the $100,000 mark, and finally broke through the important "psychological" mark of $100,000 today. In fact, the recent crazy rise of Bitcoin has already overshadowed the equally sharp rise of gold. Perhaps when some countries including the United States have successively proposed to use Bitcoin as a strategic reserve, the corner of gold has already been dug by Bitcoin:

10 years ago (December 2014), gold was 250 yuan per gram. 10 years later, it was 630 yuan per gram, a 2.5-fold increase in 10 years.

10 years ago (December 2014), Bitcoin was $360 per coin. 10 years later, it was $100,000 per coin, a 277-fold increase in 10 years.

A few years ago, when the concept of "digital gold" was first proposed, almost everyone would look at it as a liar whenever someone talked about it. However, 10 years have passed in the blink of an eye, and Bitcoin is growing at an astonishing rate, so much so that today's Bitcoin has finally begun to shake the unbreakable position of gold for thousands of years...

Gold VS Digital Gold Bitcoin

Bitcoin is called digital gold because it has some characteristics similar to gold, but many people still find it difficult to associate physical objects with virtual assets. Perhaps this should start with the background of Bitcoin's birth...

1) Background of Bitcoin’s Birth

Thousands of years ago (the exact date is not exact), gold was already a "hard currency". In fact, it was first recorded as a currency during the Spring and Autumn Period and the Warring States Period more than 2,000 years ago, and has been used ever since. People's possession and use of gold are not restricted by any person, organization, or even country, truly achieving "private property is inviolable".

According to historical records, in 1717, Newton of Britain first proposed the gold standard (a monetary system based on gold, where the amount of gold held by a country determines the amount of currency issued and the exchange value), which was subsequently adopted by countries around the world. It was not until 1971 that US Secretary of State Kissinger announced a plan to leave the gold standard, and the currencies of the United States and other countries were no longer dominated by gold, making the value of currency no longer limited by gold reserves. This means that the modern monetary system can regulate depreciation and inflation as needed.

Later, during the global financial crisis in 2008, the United States printed a large amount of money to rescue banks. People found that the money in their pockets was forced to be diluted, which caused strong dissatisfaction and distrust of the financial system. This left some textual clues for Satoshi Nakamoto to express his original intention of creating Bitcoin.

This is why Satoshi Nakamoto left this sentence on the genesis block of Bitcoin, "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks (The Times' front-page headline that day: The Chancellor of the Exchequer is on the brink of a second round of bailout for the banking industry.)"

The message trail left by Satoshi Nakamoto before his sudden disappearance has led many to believe that Bitcoin was a response to the events of the 2007-2008 financial crisis. On a message board for the P2P Foundation, Satoshi Nakamoto wrote an article in February 2009 introducing Bitcoin.

In the article, they expressed their distrust of the Reserve Bank and concerns about assets: "Banks must be trusted to hold our money and transfer it electronically, but they will transfer it in waves of credit bubbles with little in reserve. We must trust them with our privacy and not let identity thieves drain our accounts. Their huge intermediary fees make small payments impossible."

2) What are the specific similarities between gold and Bitcoin?

A. Decentralization

Gold: A natural resource found all over the world, anyone can dig out gold from anywhere

Bitcoin: A public blockchain with nodes all over the world, a resource that anyone can participate in mining

B. Mining

Gold: Gold mining requires workers, mines, equipment, and electricity

Bitcoin: Bitcoin mining also requires block producers, mining farms, equipment, and electricity

C. Scarcity

Gold: A non-renewable natural resource

Bitcoin: Upper limit: 21 million

D. Durability

Gold: Stable physical properties, never rusts

Bitcoin: The network is strong and secure, and the data on the chain is indelible

E. Anti-counterfeiting

Gold: True gold is not afraid of fire

Bitcoin: Even if you invest a huge amount of money, it cannot be tampered with

Having said that, although it is very similar in some aspects, digital gold still has many advantages that physical gold cannot achieve, such as:

• Bitcoin is very convenient to carry, you only need to remember a string of words, while physical gold is very heavy;
• Bitcoin can be verified anytime and anywhere for anti-counterfeiting, while physical gold can be easily counterfeited by using metals with similar specific gravity (in recent years, there have been many cases of adulteration of gold jewelry);
• Bitcoin is easier to split transactions, while gold is the opposite;
• Even though Bitcoin's on-chain transfers often amount to hundreds of millions of dollars, the transaction fees are only tens of dollars. It is difficult for gold and even the modern banking system to achieve such a low and fast transfer of assets.

Bitcoin is taking a bite out of gold

1) Grayscale repeatedly advertises Bitcoin as a replacement for gold

Grayscale launched its first Drop Gold campaign on May 1, 2019, and launched advertisements with the theme of "Drop Gold" to remind 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 ad “Drop Gold”, which is now running on all major networks in the U.S. This is a marketing campaign for Bitcoin, and the video states that “digital currencies like Bitcoin are the trend of the future”, aiming to make Bitcoin a tool for storing value in the 21st century.

In fact, most people, including some financial institutions, have never taken Grayscale’s advertisement seriously a few years ago. At that time, some financial tycoons even sneered at it. For example, the famous BlackRock CEO Larry Fink once said that Bitcoin is worthless! However, not long ago, Larry Fink changed his opinion and said: BTC will subvert traditional finance.

Today, BlackRock has become a Bitcoin whale holding nearly 500,000 BTC.

2) Spot ETF funds flow in quickly

As early as 2020, JPMorgan Chase, the bank with the largest balance sheet in the United States, released a report studying the success of Grayscale Bitcoin Trust (GBTC). The bank was once one of the biggest critics of Bitcoin. However, the report acknowledged that the demand for Bitcoin even affects mature markets.

JPMorgan Chase noted that the demand for Bitcoin could erode the demand for gold ETFs. According to the study, inflows into the Grayscale Bitcoin Trust in October 2023 were significantly higher than those into gold ETFs. Therefore, the American bank concluded that GBTC might be able to capture some share of the gold ETF market.

 coinglass: The current total market value of BTC ETF has exceeded 110 billion US dollars

As expected, after the Bitcoin spot ETF was launched, it received a large amount of capital inflow, while the gold ETF had a large outflow of funds. Many financial commentators have pointed out that this is not a coincidence. The Bitcoin spot ETF has attracted a lot of money, and a large part of the money comes from the gold ETF. Some time ago, there were media reports that the asset management scale of BlackRock IBIT has surpassed the largest silver ETF. Currently, BlackRock already holds more than 500,000 BTC, which is far larger than the largest silver ETF.

3) Bitcoin ranks among the top 10 global assets by market value

As of December 5, on the global asset ranking list from Companiesmarketcap, Bitcoin surpassed silver with a market value of 2 trillion, ranking 7th in the world's asset market value. Currently, the market value of Bitcoin has also surpassed the total market value of the world's four largest banks.

 Top 10 global asset rankings, source: Companiesmarketcap

Bitcoin is still more than 7 times away from the market value of gold of more than 15 trillion US dollars. Perhaps in the eyes of many people in the crypto asset circle, this may not be a very difficult thing for Bitcoin, which has grown 277 times in 10 years.

Recently, SkyBridge Capital CEO/Senior Hedge Fund Manager Anthony Scaramucci said that Bitcoin’s market value will eventually exceed the $16 trillion market value of gold. In an interview with CNBC, the founder of SkyBridge Capital called Bitcoin a high-quality asset that has never been seen in the past 5,000 years of human history.

Scaramucci said Bitcoin still has a long way to go to reach gold’s $16 trillion market cap, but he believes the distance will narrow over time as regulators approve BTC ETFs.

4) Bitcoin is playing a "safe haven" role

Most of the time, gold is used by many people as a hedge against inflation, which can also be seen as a safe-haven asset. However, the fact is that gold has not outperformed inflation most of the time. But Bitcoin, which has been breaking new highs, has a fixed supply chain ceiling, and has been halved every four years, seems to have never let anyone down in this regard.

Due to the general consensus, the volatility of gold is very low, while Bitcoin is just the opposite. Therefore, while Bitcoin has higher growth potential, it also bears higher risks accordingly. However, the volatility of Bitcoin is gradually decreasing. At the same time, Bitcoin is truly on the road to becoming an optional "safe haven tool" for countries with high inflation...

Recently, a new report from the International Monetary Fund (IMF) titled "A Primer on Bitcoin Cross-Border Flows" pointed out that BTC has become a necessary financial tool for preserving wealth in the face of financial instability. The analysis also pointed out that on-chain Bitcoin transactions, which are recorded on the blockchain and provide higher security, tend to be larger than off-chain transactions. This shows that the powerful security features of blockchain technology generally protect greater financial interests.

The report's authors say bitcoin trading offers individuals in countries with high inflation a way to stabilize their savings and participate in global commerce in a way that is not possible with local currencies.

From another perspective, when missing out is also seen as a "risk" and the "alternative asset" Bitcoin is added to the portfolios of many investors, in many cases the consideration is to hedge the risk of not being able to get on board the future Web3 technology in time and missing out on crypto assets.

When the crypto market deteriorates, some people will choose to exchange high-risk altcoins for more stable and less risky Bitcoin, which not only stops losses in time to reduce risks but also avoids the risk of leaving the market empty-handed. Therefore, Bitcoin is often used to hedge the high risks brought by altcoin assets.

summary

In fact, it is not surprising that Bitcoin is gradually eroding the market share of gold. The relationship between "digital gold" and "gold" is like that between "digital payment" and "paper money". As time goes by, the use of paper money is getting less and less, and the old gold may not be able to meet the needs of everyone, so Bitcoin fills this gap. As for whether Bitcoin can gradually surpass gold, it will take time to verify.