Why gold is not the same as Bitcoin ? :


At a time when bitcoin is making headlines every day - both for its flight and its setbacks - the analogies between crypto-currencies and gold are increasing. We look at these comparisons with the utmost skepticism. Decryption.

Crypto-currencies are not currencies
This abuse of language has been repeatedly denounced by the Autorité des Marchés Financiers, which recalls (if need be) that only the euro is legal tender in France. Understand: Bercy is not ready to accept the calculation and payment of taxes in bitcoins ... Everyone can accept it for payment of goods or services, but sooner or later it will be necessary to convert them into euros, to their risks and perils.

Gold, for its part, has been a currency for centuries, and has ensured the three essential functions: settlement of trade, unit of account, and store of value. If this status belongs to the past, its millennial history has left strong cultural traces: even a child of five knows that the yellow metal is precious. And it will last as long as there are stories of pirates looking for chest filled with gold coins ...

Gold and bitcoin are therefore simply assets, the price of which varies according to supply and demand. The first is a digital asset. The yellow metal is a real and palpable asset.

Only what is rare and useful is expensive
Another early analogy is that gold and cryptocurrencies derive their value from their scarcity. Clearly, supply would be structurally limited.

Admittedly, the maximum quantity of a cryptocurrency in circulation is determined and fixed. But their number, it is not and nothing prohibits their proliferation (there would be about 1500!). Nor does it exclude that one day the central banks themselves issue a crypto version of their official currency ....

The yellow metal is a chemical element, by nature not synthesizable: no one can decide to create a new version. It is also estimated that about half of the planet's gold is still underground.

But economists know that scarcity is not enough to make the value of an asset. In the desert, a television is as rare as a bottle of water. It is the need that creates the demand and makes the value of it.

Speculation against real demand
About 60% of the world's demand for physical gold comes from jewelery and industry (source: Gold.fr). The remaining 40% corresponds to investment demand, mainly long-term, with a wide variety of players (central banks and governments, pension funds or sovereigns, banks, private individuals, etc.). Classically, when the price of gold rises, its demand tends to decrease to find a new equilibrium price.

In contrast, the demand for cryptocurrencies is currently 100% speculative and peculiar. When their price rises, the demand also (and vice versa). A mechanism by nature unstable that leads to bubbles and debacles. Since its creation in 2009, bitcoin has experienced no less than 4 crashes, erasing each time between 65% and 90% of its value in a few months.

This speculative phenomenon is encouraged by overabundant and criticized online advertising, leading to irrational behavior. Thus, the Kodak title has doubled the day of the announcement of the launch of a crypto-asset to manage the rights to the image. That of Long Island Ice Tea (a beverage company) tripled the day it was aptly named Long Blockchain. Before collapsing ...

Examples that recall those of the technological bubble of the 2000s. Let's push the analogy: just like the internet, blockchain technology will develop despite the initial fiascos. Silicon Valley has understood this well: it does not invest in bitcoin, but in companies that will deploy blockchain technology tomorrow to large parts of society.

The gold market is of institutional quality
The market structure of cryptocurrencies is still in its infancy: prices vary greatly from one platform to another, there is little transparency on the holders and transactions, lack of regulation, security problems and possible financing of illegal activities. ... For now no institutional investor will risk its reputation.

Gold has passed through the centuries, crises of all kinds and its market is now mature. It offers a high degree of price transparency, information, and a well-known regulatory (and tax) framework. It is an institutional asset, relatively liquid. It is influenced by economic variables (real interest rates, dollar level, etc.) and serves as a safe haven against the risks of inflation, severe geopolitical crisis and monetary disintegration.

Finally, there may be a cherry on the cake: by admitting that crypto-currencies gain one day the status of parallel money, it is likely that the destabilizing effect on companies is such that the or take advantage ... Towards a peaceful cohabitation?
0