Bitcoin is more valuable than gold…
Since its inception*, bitcoin has had one goal: to be “better at being gold than gold**”. So today, light up social media, queue the headlines from the Wall Street Media***, Bitcoin is more valuable than gold!
In today’s more-noise-than-signal information economy, it would be easy to continue this sentence, go on about why there is “bitcoin gold parity”, how the price of 1 BTC is now ascending past 1 troy ounce of gold, how it’s now obvious that “bitcoin is the new gold”, bitcoin is a better store of value than gold, and that digitally savvy generations no longer “believe in gold”, but they “believe in bitcoin”.
But alas, there is still a market to measure these statements against, and what Mr. Market is still telling these types of “fake news” headlines is, “Frankly, my dear, I don’t give a damn.” Because you see, bitcoin in not more valuable than gold, it’s not even remotely in the same class, even if the arbitrary unit of 1 BTC has parity with 1 troy ounce of gold (with troy ounces being about as useful and logical an everyday measurement as a BTC-currently).
What worries me, and the point of this blog(rant), is that money’s value is not subjective or opinion, it is a market measurement that we should really try to understand if we want to be taken seriously in financial conversation. We seem to live in an age where the dismal science of economics is said to be more and more subjective (animal spirits and such) as the economists get their models and measurements more and more wrong.
“Every line is the perfect length if you don’t measure it.”
― Marty Rubin
As of today, while a troy ounce of gold = 1 BTC, a kilogram of gold is worth ~32.2 bitcoins, and a myriagram of gold is worth ~322 bitcoins (a myriagram being 10,000 grams, which would approximate the equivalent ‘millions of units’ needed to make the total stock of gold proportional to the eventual stock of BTC — or in other words, bitcoin needs to go up another %32,100 to be more valuable than gold).
But why go on about all this, what do we learn from it about bitcoin, gold, and money? At the end of the day, I own both gold and bitcoin (and even USD), and the market is telling us that bitcoin has increasing value and we should try to figure out why (at the begging of each day we should look at market information assuming we have no idea whats going on, and rigorously try to figure out not just movements and correlation, but causality).
The reason I chose to go on about all this is that financial media has descended to a level of subjectiveness that “value” and “money” are becoming quasi-religious discussions, and increasingly nobody seems to understand what money even is (particularly the NIRP-pushing central bankers that believe markets will continue to value currency and risk that nobody is being paid to hold — hint: its only working FOR NOW as you telegraph every trade as buyers of first resort).
However, I still choose to measure and discover value using the one objective arbiter of any discussion, a decentralized market. While financial media (and even academia and Wall Street Sell Side) continues to use anecdotes and falsifiable-statements to sell(manipulate) views, financial products, and drive internet traffic, opinions do not become market-facts no matter how many times you say them (every day the market tells me, “that’s the difference between you and me, you’re smart and I’m right”).
Examples:
“Gold has no use, the ultimate speculation”: nearly $7 trillion dollars of gold (and new supply/demand growth that has never ceased) has the same use that its had for 6,000 years — money. Gold is a bearer-store of value with energy-based scarcity and no carry-decay (no other asset has achieved this feat over a longer timeframe, ever, which is why billions of people and a $7 trillion market still demand it regardless of your views, opinions or theories).
“Bitcoin’s value is based on air and speculation”: bitcoin’s value is based on its commodity utility (global bearer-exchange with low marginal transaction cost) relative to its scarcity and replacement cost — just like any other good, service, or money. Like gold, bitcoin has a replacement cost and a manufacturing process whose value is anchored in the scarcity of time.
“The market decided gold was no longer good money because no country maintains a gold standard; gold is outdated”; wrong, central planners decided it was too difficult to manipulate with policy, too valuable, too rigid, and too scarce to be money they could control (i.e. bail out banks that couldn’t manage duration risk or NIMs on a unit that doesn’t cheat wages and savings with inflation). People and Mr. Market NEVER stopped demanding gold for its monetary utility, as a superior long-term store of value to EVERY OTHER money that has ever been tried, everywhere and always. Central planners moved on from gold (to the detriment of wage earners and savers), the market did not. ..and lets watch this cycle play out over the next decade, see what people decide is the best money for their everyday needs at the next lap of our currency race to the bottom.
“gold went up/down based on fear (or jewelry demand)”; see Goldmoney Insights here and here, respectively
“gold is too volatile to be money and fluctuates on unpredictable supply and demand”: upcoming Goldmoney Insights report. Gold is a money stock with currency like volatility in historical returns (with downside tails similar to any currency risk, but upside fat-tails similar to equity returns); this is measured objectively and grounded in commodity price economics (that values stocks, not flows), no matter how many people say that gold is a volatile commodity with no real use .
“Bitcoin is more valuable than gold, will be less volatile”; but enough of my rant, please see my colleagues rigorous research on the subject
* as seen in Bitcoin’s economic architecture, foundational propositions (see Nick Szabo’s bit gold), and promoted use cases as a cross-sovereign utility, bitcoin seeks monetary utility with bearer-instrument properties and the scarcity value of gold
**to quote the falsifiable-marketing prospectus of the Winkolvoss twins, a common bitcoin sales pitch that is objectively-false but used to sell financial products anyway
**The Wall Street Journal’s “Bitcoin is less volatile than gold” journalistic-debacle, misleading readers with compounding impressions and re-parroting, as discussed on Twitter
