Bitcoin has always been compared to gold. Obviously Bitcoin is not literally like gold. But the metaphor is used to be able to have a reference. The phrase “digital gold” basically hints that Bitcoin aspires to be a store of value. Something like gold, but digital. Bitcoin and gold have the peculiarity of being fungible, but of limited supply. Which makes them an ideal instrument for the purpose of store of value. However, despite their similarities, both assets have important differences. They often present themselves as rivals, but deep down they are not. Why?
A few days ago, American businessman and celebrity Mark Cuban started a heated discussion with Bitcoin and gold beetle detractor Peter Schiff about the supposed death of gold. According to Cuban, Bitcoin and Ethereum are enhancers, but gold is “dead.” According to Schiff, Wall Street companies are foolish to buy Bitcoin. Gold is the only possible store of value, and Bitcoin is simply a passing speculative bubble. In my opinion, both parties are wrong.
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The comparison in these terms between both assets is inadequate. We are talking about pears and apples. Despite the frequent use of the metaphor “digital gold” in the debate, the truth is that almost no one sees Bitcoin as gold. Gold is an extremely conservative asset. Which implies that it is extremely liquid, stable and boring. Despite being the favorite asset of old-guard libertarians, gold is an instrument closely tied to governments. The idea of a supposed independence of gold with respect to governments is often sold. But this supposed independence is quite illusory. In fact, the world’s main gold holders are governments.
Bitcoin, on the other hand, is a completely different asset. It is a less liquid market, much more volatile, and much more immature. It’s something new. Of ambiguous regulation. And it is a market dominated by retail capital. However, in recent years, institutional capital has notably increased its presence. Now, Bitcoin is a much riskier asset than gold. But that is its main attraction. Bitcoin buyers are not buying Bitcoin precisely because of its stability. They do it for their profitability. Bitcoin is an extremely aggressive speculative asset. And gold is a much more conservative (speculative) asset.
Peter Schiff is obviously an ultra conservative guy. His enmity with Bitcoin is closely linked to that ultra-conservative view of his. Gold is an asset that revolves around fear. And Bitcoin is like going on a parachute. Personally, I am not surprised that so many gold beetles are detractors of Bitcoin. It’s natural. Gold seeks its legitimacy in its long history and in its physical properties. Hence, the conservative mind is skeptical of the new and digital. The ultraconservatives do not see beyond what is traditionally valid. And they usually resort to dogma to justify their positions. In fact, Peter Schiff believes in almost nothing. He doesn’t believe in Wall Street, he doesn’t believe in the dollar, and he doesn’t believe in Bitcoin. Just believe in gold. This is a closed-minded know-it-all.
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However, gold as a store of value is also an abstraction. Europeans who arrived on the newly discovered American continent saw gold in a completely different way than the local population. The English who came to the Chinese shores in the 18th and 19th centuries could not use their gold coins to trade for the simple fact that the Chinese did not recognize their monetary value. So, they used opium as a medium of exchange. Anyway, gold is also an abstraction. Because its true value as a medium of exchange lies in the human eye. Value is an essentially subjective phenomenon. The substrate can be the word, a metal, a stone, a number or a code. The channel does not matter. The important thing is the message. Because we are facing a very human phenomenon. That is what Peter Schiff does not quite understand.
Among the things that Robinson Crusoe was able to salvage from the ship during its wreck was a trunk full of gold coins. During all the years that Robinson spent on the desert island, he found no practical use for that gold. In fact, once rescued, already on the ship, it was belatedly remembered that he had forgotten that trunk on the island. Here the author is not indicating that money is an essentially social phenomenon.
The term “bubble” is used very often to indicate that the price of an asset is being driven by merely subjective elements. In other words, the market is being irrational about a valuation. However, the term “bubble” is overused. Because we forget that every assessment contains a strong human charge. That is to say, all valuation is a social pact. Gold is valuable, because we believe it is valuable. Bitcoin is valuable, because we believe it is valuable. It seems to follow a circular logic. However, this is how value works. Valuations do not always follow conventional logic. What is worth more? A liter of water or a diamond? A Picasso or a ton of food? Who makes the most money? A footballer or a nurse?
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To Peter Schiff it seems absurd that a code has more value than a metal with practical applications. It is absurd, if we have an ultra-conservative view of things. To the Spanish speaker, the Chinese language may seem like a series of meaningless sounds. However, that is not to say that the Chinese are stupid for communicating with “meaningless sounds.” Languages, like money, are social pacts. Spanish speakers subscribe to the symbolic system commonly called “Castilian”. And the Chinese to one called “Mandarin” or “Cantonese”. They are recognition systems. If you’re in, you understand. If you are not in, you do not understand.
Gold is valuable. Bitcoin is valuable. But, for me, Bitcoin is more valuable, because personally I don’t know much about gold trading. I mean, I wouldn’t know what to do if they pay me something with gold. Whereas with Bitcoin I would have no problem. In Schiff’s case, the opposite may be true.
Now, I highly doubt that gold will die. And I highly doubt that Bitcoin is a fool’s investment. There are two markets. And they can coexist. I think they are very different things. And the comparison is pretty stupid. In an investment portfolio, gold could give stability and Bitcoin could give growth. In this context, they are not rivals. In fact, they are complete. The life of one does not imply the death of the other.