Kevin Lux
Kevin Lux
Jul 21, 2017 · 2 min read

How would gold and crypto work together? My gut feeling is that crypto would displace gold from the role as alternate currency, but is it also possible that crypto can make gold practical as an alternative currency? The transaction difficulty associated with gold only made it practical to buy and hold it in a safe. Someone tried e-gold a while back, but governments — particularly the US — treat gold like crap when it comes to taxation. You had to calculate your capital gains and pay the collectible item rate (28%), so as a merchant, who wanted the hassle?

People don’t see the intrinsic value in a digital currency, but they do see intrinsic value in gold and silver, even if it’s not terribly useful. It seems that the barrier to entry for creating a new crypto isn’t anywhere near as high as that of bringing a new gold mine into production, so if Bitcoin gets too expensive, you just build a functional equivalent, right? An ounce of gold has labor, time, and energy embedded into its value. A proof-of-work crypto has some electricity embedded into its value, but there could be any number of different cryptos and though they may have taken the same amount of energy to “mine,” people ascribe vastly different values to them based on how much they’re used.

Is it logical that a Bitcoin is worth twice as much as an ounce of gold that had to be mechanically and chemically separated from a ton or more of rock? No. There doesn’t seem to be much of a grounding for the price of Bitcoin at the moment. The electricity that was used to produce a Bitcoin less than a year ago didn’t become five times more expensive, nor did it become five times harder to produce one in that time. It’s trading on emotion and that’s a problem for a currency if you want wide adoption. Currencies should be boring. Fifteen percent intraday moves for currencies are unheard of except in crises. Currencies also don’t have arbitrary limits on their supply. They need to “breathe” with economic forces. Even under a gold standard, the supply of gold slowly increased as people searched for it. We’re still a long way from running out of mineable gold and even though we haven’t been on a gold standard in decades, enough people see an intrinsic value in it to keep looking for it. I just wonder if crypto would be the answer to making gold a practical asset class again.

    Kevin Lux

    Written by

    Kevin Lux

    Meteorologist, amateur photographer, designer of funny t-shirts, husband.