Author: Mu Mu/Baihua Blockchain
"The price has risen again! The gold price has soared to over 700 yuan per gram." People from all walks of life around the world have been discussing the "madness" of the gold price this year. But many people may not know that Bitcoin, also known as "digital gold", has exceeded 500,000 yuan per coin. Some people may say that it is difficult to compare due to different units, so you can refer to the following set of figures:
10 years ago (2014), gold was 250 yuan per gram. 10 years later, it was 700 yuan per gram, 2.8 times more in 10 years.
10 years ago (2014), Bitcoin was $500 per coin. 10 years later, it was $70,000 per coin, a 140-fold increase in 10 years.
A few years ago, when the concept of "digital gold" was first proposed, almost everyone looked at it as a liar. However, 10 years later, Bitcoin is growing at an astonishing rate, so much so that Bitcoin today is finally beginning to shake the unbreakable position of gold for thousands of years...
01
Gold VS Digital Gold Bitcoin
Bitcoin is called digital gold because some of its characteristics are very 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.
That’s 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 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 pass it out in waves of credit bubble with little in reserve. We must trust them with our privacy and not let identity thieves drain our accounts. Their massive intermediary fees make small payments impossible.”
2) What are the specific similarities between gold and Bitcoin?
A. Decentralization <br>Gold: A natural resource found all over the world, anyone can mine gold from anywhere Bitcoin: A public blockchain with nodes all over the world, making it a resource that anyone can mine
B. Mining <br>Gold: Gold mining requires workers, mines, equipment, and electricity. Bitcoin: Bitcoin mining also requires block producers, mines, equipment, and electricity.
C. Scarcity <br>Gold: a non-renewable natural resource Bitcoin: upper limit: 21 million
D. Durability <br>Gold: Stable physical properties, never rusts Bitcoin: Strong and secure network, data on the chain is indelible
E. Anti-counterfeiting <br>Gold: Real 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 for anti-counterfeiting anytime and anywhere, while physical gold can be easily counterfeited by using metals with similar specific gravity (there have been many cases of adulteration of gold jewelry in recent years);
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 low and fast asset transfer fees.
02
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 re-launched the 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" and aims to make Bitcoin a tool for storing value in the 21st century.
In fact, most people, including some financial institutions, did not take Grayscale’s advertisement seriously a few years ago. Some financial tycoons even sneered at it at the time. 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 30,000 BTC.
2) Rapid inflow of funds into spot ETFs
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.
Table of changes in US stock Bitcoin spot ETF holdings, source: https://www.hellobtc.com/etf/
As expected, after the Bitcoin spot ETF was launched, it received a large amount of capital inflow, while the gold ETF saw a large outflow of funds. Many financial commentators have pointed out that this is not a coincidence. The Bitcoin spot ETF has attracted a large amount of money, and a large part of the money comes from the gold ETF.
Some time ago, media reported that BlackRock IBIT's asset management scale has surpassed the largest silver ETF and ranked third among all commodity ETFs (the figure below is historical data). Currently, 11 spot Bitcoin ETFs in the US stock market hold a total of about 840,000 Bitcoins, with a market value of nearly US$60 billion.
3) Bitcoin ranks among the top 10 global assets by market value
As of April 23, on the global asset ranking list from Companiesmarketcap, Bitcoin ranked ninth in global asset market value with a market value of 1.35 trillion, second only to silver. Currently, the market value of Bitcoin has surpassed the total market value of the world's four largest banks.
Top 10 global asset rankings, source: Companiesmarketcap
Bitcoin is still more than 10 times away from the market value of gold, which is 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 140 times in 10 years.
Recently, SkyBridge Capital CEO/Senior Hedge Fund Manager Anthony Scaramucci said that the market value of Bitcoin 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 upper limit for the supply chain, 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 miss the pump 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 with future Web3 technology in a timely manner and miss the pump on crypto assets.
When the crypto market gets worse, some people will choose to exchange high-risk Altcoin 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 miss the pump. Therefore, Bitcoin is often used to hedge the high risks brought by Altcoin assets.
03
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.
Source: https://mp.weixin.qq.com/s/Hr5TrhO_Sqn5B-oEtpRG_w
