Last year in one of my postings I raised the question of whether Bitcoin would become the ‘gold standard’ of the crypto world. That question is still being asked, most recently at the World Economic Forum in Davos, where there were opinions varying from a zero valuation of Bitcoin, through to the idea that it will become the super stable crypto, around which everything else is pegged.
First though perhaps we should look at what the gold standard was in the conventional financial world, where gold reserves once underpinned almost everything. These days, the approximated value of gold amounts to around USD 11 trillion, equating to something like 190,000 tonnes of gold in the world. That sounds like a lot, but is actually only the weight of thirty elephants! Thirty solid gold elephants doesn’t sound quite so much does it? The figures are approximated because gold has been in circulation for so long that no-one knows how much is really hidden, lost, or in family and personal collections — in the form of jewelry for example. What we do know is that the price of gold is relatively stable, compared to many currencies, and indeed there are even a host of cryptos backed by gold. Part of the attraction is that ‘gold is gold is gold’ (although in reality, around the world, gold does have variations in quality, and therefore value).
So from gold, to the idea that Bitcoin could be the ‘gold standard’ for crypto. Not according to one panelist at Davos, the investor Jeff Schumacher, who said: “I do believe it (Bitcoin) will go to zero. I think it’s a great technology but I don’t believe it’s a currency. It’s not based on anything.”
While many of us are busy in the cryptoverse as investors, entrepreneurs and commentators, it’s slightly worrying that Davos provides a platform for opinions which are paraded before the politicians and legislators of the world. Of course they are ‘just opinions’, but now there’s a view that in the near future Bitcoin will become worthless. I’m not convinced that’s a helpful opinion.
Meanwhile what Davos did hear a lot about was the value of blockchain as a transformative tool, and I’m all for that. “When you send an email out today, you don’t think about the underlying technology you are using. So you can hear us talk about, what protocol, what token, what technology solutions, how many transactions per second, but eventually what’s going to happen is you are going to put something of value in, (and) something of value will come out the other side, and you are not going to care what the underlying technology is.” This was the view from Glenn Hutchins of North Island, also on the panel with Schumacher.
So allegedly the blockchain is here to stay, and Bitcoin is essentially junk. The former I can’t argue with because blockchain is a brilliant tool which in the next few years will become the backbone of so much of commerce and communication. For example I’ve often referred in these posts to the power and security that the blockchain will bring to the large numbers of unbanked people in the world — particularly in Africa. But the Davos audience weren’t getting the full picture, because without the cryptocoin part of the equation, the blockchain is just another delivery medium, like having email systems, but without any messages being written.
The fact is that some form of cryptocurrency has to be used in the cryptoverse, and while the variety of different coins won’t reduce any time soon, there has to be something by which all the others are judged. To me it’s obvious that this must be Bitcoin, the original and still the most widely adopted coin. OK, it’s not perfect, but it’s the nearest we have to a gold standard, for the time being. The point that the Davos audience weren’t being given is that investing in currency alone isn’t really what it’s all about ultimately. The media has become fixated on 1,000x gains in the value of cryptos (and equivalent losses), but the real value we should all be focusing on is investing in businesses, not currencies. Only that way can the development of new ventures be possible — by supporting new offerings, rather than obsessing on the price and value of cryptocoins. A recent SFOX article put the case well for Bitcoin as ‘the gold standard of crypto’: ‘Gold is useful because it provides a store of value outside of currency and stock markets. Bitcoin, if it’s able to address key technical and scalability challenges, has the potential to do the same.’
Just tell me I’m not dreaming of golden elephants, OK?
Check out gold-backed cryptos at:
For a highly entertaining comparator of figures, and the place I got my ’30 elephants’ from, be sure to browse: