Bitcoin was invented by Satoshi Nakamoto to be the peer-to-peer digital cash. But in recent years, the vision and narrative of Bitcoin have changed from a simple “digital cash” to “digital gold.” If you have been in the crypto trading space for a while, you might have heard of it quite frequently. “Bitcoin is the digital gold” is a very common phrase that has been repeated over and over again by Bitcoin believers. The real question is, how true is that narrative?
Natural And Finite Resources
One of the biggest debates regarding fiat currencies is the fact that they can just be printed by governments to solve banking-related and monetary issues. Many investors believe gold and several other precious metals might be a much better investment plan long-term due to their natural and finite resources (compared to US Dollars and other fiat currencies). There is no central entity that can “print” gold anytime they want to.
The fact that gold has natural and finite resources make it desirable, especially in the era of political and financial instability. When the world started to recover from the global crisis in 2008, gold price kept going up before it eventually crashed a few years later. Many people predict that gold price would keep pumping if we have another global financial uncertainty in the upcoming years.
And then, there’s Bitcoin. Just like the physical gold, you cannot just print a new supply of Bitcoin whenever you want. There’s a proof of work consensus algorithm involved to “mine” new Bitcoin, and the supply is finite. The fact that there’s no centralized entity and everything must be confirmed by other ledgers on the blockchain make Bitcoin attractive and incorruptible.
The similarity between the two when it comes to supply is one of the main reasons why Bitcoin is being called Digital Gold. Obviously, there’s more of Bitcoin rather than just a simple store of value. But still, this is why Bitcoin believers are hoarding more BTCs in their own crypto wallets. Because they believe it will be harder and harder to mine Bitcoin, creating upward pressure in the long-term price action.
Digital Gold For The Digital World
Most people have accepted the narrative that physical gold is a good hedge against global political and financial instability. However, it’s never easy to transport a large amount of physical gold. You also need to keep them in good shape if you plan to keep them for a long period of time. Of course, you can always get a piece of licensed paper in exchange for stored gold somewhere in a third party vault. But, most people still have a conservative view about storing their own pieces of gold. They think that your gold is not truly yours if you cannot touch it.
How about Bitcoin? Well, the good thing about Bitcoin is that everything is stored on the blockchain in a decentralized ecosystem. We live in a digital world where everybody connects with each other through social network, messenger, and web or mobile applications. Obviously, to have something like gold but can be stored digitally, it is like a wet dream. And yes, we have that in the form of Bitcoin.
With Bitcoin, you do not need to be worried about its shape or where it comes from. 1 bitcoin will always worth 1 bitcoin, and the ownership is easily verifiable on the blockchain. What you need to do is just to make sure no hacker can gain access to your crypto wallet. It’s actually far easier to keep your Bitcoin safe rather than to keep your gold safe. With Bitcoin, you simply need to get a hardware wallet and make sure you never tell anyone about your recovery phrase.
And yes, the beauty of Bitcoin is that you can easily access the same wallet wherever you go. You can access it when you are traveling to Brazil or when you are in New York or anywhere in the world. It’s different with gold where you might have less peace of mind if you decide to travel for a long time, far from your home.
Price Volatility And Untested Narrative
The issue with Bitcoin is that many people outside the crypto space still do not want to equate Bitcoin to physical gold for two specific reasons. The first reason is price volatility, and the second one is untested narrative.
So, regarding price volatility, Bitcoin has been going up and down quite easily since its inception until today. In 2019, Bitcoin quickly went up from below $4000 to above $10000 within just a few months. When the price went down to below $8000, it also happened within a very short period of time. You don’t see the same price action with gold, which makes it less risky for big investors. And as long as Bitcoin remains extremely volatile, unfortunately, many gold believers outside crypto space would remain skeptical about Bitcoin being “digital gold.”
The second issue is the untested narrative of Bitcoin when it comes to hedging against global financial and political instability. Gold had proven itself to be a really profitable hedging asset when the world started to recover from the last financial crisis in 2008. However, Bitcoin never had this moment. Despite the fact that Bitcoin was invented by Satoshi Nakamoto after the last financial crisis, it still hasn’t been through this same phase.
The good thing about the world of trading is that things often happen due to self-fulfilling prophecy. For example, gold price can easily go up when big traders believe that the price will go up after they themselves buy a massive amount of gold. These big traders are actually the ones that cause big upward pressure on the market due to the increased demand vs. limited supply.
The same thing often happens with Bitcoin as well. When enough traders believe that Bitcoin price will go up, they will buy a massive amount of Bitcoin on the market, and those actions are actually the reason why Bitcoin price goes up.
And when it comes to Bitcoin as Digital Gold, it’s quite possible that Bitcoin price will keep going up, when enough traders believing that it is a good store of value. Perhaps one day, Bitcoin price will not be as volatile as today when there is more liquidity on the market, and when there are far more Bitcoin believers.