Diane Tea is a professional with 20 years of experiences working for 4 big Corporations, in Technology Architecture and Digital Innovation, International Business, Global Technology Procurement, Strategic Negotiations dealing with Fortune 100 Corporations. Anna Komashko interviewed Diane to find out what bitcoin and other assets have in common and how the cryptocurrency market will change in the near future.
- Diane, can we consider Bitcoin as an alternative to Gold?
- Neither Bitcoin nor the crypto market as a whole stand anywhere near the multi-trillion-dollar value levels of Gold, bonds, and stocks. Investors looking for stable assets would clearly be better served, currently, to put their money into any of the three larger asset classes, not to mention alternatives such as real estate or owning your own business.
However, I believe that Bitcoin and Gold are alternative assets and are at the same time complementary, and that Bitcoin represents a good asset to possess in your investment portfolio if you are looking to diversify it. Bitcoin and Gold indeed share very similar properties on many aspects, and at the same time, having some different advantages.
- What similar advantages do they have?
- Both Bitcoin (and cryptocurrencies in general) and Gold are alternatives to FIAT currencies, as they are not government-issued media of exchange. They are indeed not issued by a central bank or a federal government. Bitcoin was conceived as the “Digital Gold” from the very beginning and the process of generating Bitcoins is called “mining”, just as Gold needs to be mined, i.e. extracted from the ground and processed.
As a decentralized cryptocurrency, Bitcoin is generated by the collective computing power of “miners”, individuals and pools of people working to verify transactions which take place on the Blockchain network and are then rewarded for their time, computing power, and effort with Bitcoins. In terms of their transparency, safety and legality, they are both difficult to be stolen, counterfeited and corrupted. Stealing Gold is very hard nowadays, fake Gold can be easily detected and it is not possible to corrupt the metal. Bitcoin, with its encryption, decentralized system and complicated algorithms makes it difficult to be corrupted too.
Both assets are rare and their supply is limited — it cannot be increased at will by politicians or central bankers as said earlier. Gold is a scarce asset and its supply remains low. Likewise, there is also a limited amount of Bitcoin with a set cap of 21 million tokens. To ensure that the market isn’t flooded, the Bitcoin protocol stipulates that these rewards are periodically halved, ensuring that the final Bitcoin will not be issued until about the year 2140.
Both Gold and Bitcoin can be used as hedge against inflation, as they allow investors to preserve the actual value of their assets.
- That’s very interesting! But is there anything different between these two assets?
- Yes, for sure! Obviously, they have some different advantages! Divisibility is an advantage of Bitcoin as you can buy a small fraction of it, as tiny as you need. Both have different liquidity advantages: while it is easy to buy and sell Bitcoin, it is much easier to get cash for gold than cash for Bitcoin. The digital nature of Bitcoin makes it a wealth that is easily portable and stored, as opposed to Gold.
In the contrary of Gold, Bitcoin has proven to be quite volatile and subject to markets’ ups and downs, making it a concern for the investors. At its highest point, around the beginning of 2018, Bitcoin reached a price of about $20,000 per coin. About a year later, the price of one Bitcoin fell to around $4,000. It has since recovered a portion of those losses, but is far from its previous high price point. It means that news from the digital currency sector could prompt investors to make quick decisions… This volatility is not inherent to Gold, making it perhaps a safer asset. You can also argue that Bitcoin has more “speculative” value, and a shorter track record than Gold itself.
Gold exposure can be bought with ETF (Exchange-Traded Fund) purchases or in other formats quite easily, and still garner Government approval. This means that it is likely to expect that dramatic investor losses in Gold may be backed by the Government and they might be compensated for their losses. In its current state, the same thing can still not be expected for cryptocurrencies.
Gold is a tangible asset, whereas Bitcoin is an intangible digital asset i.e. virtual which you cannot put your hands on. Also, gold has historically been used in many applications, from luxury items like jewelry to specialised applications in dentistry, electronics, and more. As the world shifts onto more towards digital business, Bitcoin has proven to be a more useful and viable medium of exchange with potential to grow.
- Do you have your personal experience with Bitcoin?
- Yes! I do have experience on Bitcoin and Ethereum, as I have invested using these 2 cryptocurrencies in a couple of Startups having their products developed over the Blockchain network.
- What do you think its main value is?
- Based on the high potentials of the Blockchain technology, Bitcoin itself has tremendous baseline value as well. Billions of people around the world still lack access to banking infrastructure and traditional means of finance like credit. With Bitcoin and other cryptocurrencies, these individuals can send value across the globe for close to no fee. Bitcoin’s true potential as a means of banking for those without access to traditional banks has still yet to be fully developed. One of the Startups I invested in, is in that development sector.
Its value also resides in both the future value of online transactions conducted through its networks. As the world becomes more and more digital and business moving towards e-commerce settings with cross-borders payments, I believe Bitcoin has a good future ahead of it. Our next generations, starting with perhaps the Millenials and more with the generation Z, will be more likely to adopt Bitcoin and its counterpart cryptocurrencies.
There is also a sense of belief that eventually, there will be a need to delegate financial trust and authority. This is what makes Bitcoin such an interesting technological and economic experiment: it has certainly proven that individuals organising and cohering together with a set of technologically implemented rules can create value without the stamp of a FIAT and governmental authority.
Its code is open source, meaning that it is available for anyone to look at, scrutinise and even modify. This means Bitcoin is constantly evolving and improving. It evolves in an ecosystem where the potential of new innovation is higher as it can draw in talented thinkers and creators and the open-source community deeply dedicated to the principles of Bitcoin is strong.
- What, according to your opinion, is expected in the crypto area within the next couple of years?
- As you have understood by now, I am rather a supporter of Bitcoin and in the Blockchain technology in general. Based on the potentials of development and value, that I mentioned above, I believe that the total market capitalization of cryptocurrencies could “explode” over the next few years. However, the relative complexity of use of the cryptocurrency and some of its current technological challenges (your digital fortune can be erased by a computer crash, and its network could be subject to a hacker), will not make it be soon a mainstream financial system and dethrone the FIAT currencies.
Looking further ahead, with the advent of the new generations as said earlier, and with the technology advances, I believe its adoption will accelerate.
At the same time, because of people’s growing interest of it, scrutiny over it will also increase. Because the crypto area could be host of illegal activities, it has attracted the attention of powerful regulatory bodies and other governments agencies. Although this could somehow erode the fundamental value coming from its decentralization and transaction anonymity, by nature, Mankind requires “policing”. There is a natural need to balance the value of decentralization, with adequate consumer safeguards and protection and user anonymity preservation so that the crypto area does not represent a conduit for tax evasion, money laundering and other fraudulent activities.
