I was notified by a number of my gold-hawk friends, who usually look down on cryptocurrencies like Bitcoin, that Bitcoin is now worth “more” than gold. Currently, Bitcoin is selling for $1,503, and gold is a mere $1,246.
This has happened in the past a number of times, but this time seems to be unique. Gold and Bitcoin seemed to be somewhat linked in their price fluctuations in the past. As gold rose, Bitcoin rose. Over the last few months, Bitcoin has seemingly decoupled from gold, and now rises and falls on its own, regardless of how well gold is doing.
Many gold hawks don’t recognize that while Bitcoin isn’t a tangible coin, it offers many of the same qualities gold has. It is widely accepted as money. It can’t be duplicated. It isn’t controlled by a government. It doesn’t degenerate (the way apples or cattle do). There’s more though.
Bitcoin Has Advantages
Gold and silver have been money for thousands of years. This is one of the most attractive aspects of investing in precious metals – their history. Through most of the 20th century, the dollar was linked to gold, and gold sold for roughly $35/ounce. In 1971, Richard Nixon took America off the “gold standard”. Since then the price has skyrocketed. Or rather, the value of the dollar has plummeted.
Gold has been a great store of value in the past, and continues to serve its investors today. However, gold itself, as in physical gold, isn’t available to much of the world. In America we take for granted that there are gold/silver shops throughout the country. Any American can easily go to a store and buy gold, or buy it online and have it shipped to their home.
For billions of other people, this isn’t the case. Gold is NOT readily available to people in India, China, or Venezuela – but Bitcoin IS! It is in these countries where Bitcoin is in the highest demand, and all someone needs to exchange their own money for Bitcoin is a phone.
Gold hawks will say that the fact that gold is something physical is an advantage. For the world’s poor, who seek to escape their own collapsing currencies, this is a disadvantage.
Gold & Bitcoin Aren’t the Same
This should be obvious, but comparing the price of gold to Bitcoin isn’t rational. Because Bitcoin isn’t physical, it doesn’t make sense to compare it to something that is. Gold is usually measured in ounces, but Bitcoin isn’t measured that way. To compare the two in price is foolish.
Silver and gold can be compared on their price/ounce because both are measured in ounces. An ounce is a physical measurement. Cryptocurrencies aren’t physical! I personally have more experience in gold/silver markets than Bitcoin, but I also recognize that the two aren’t comparable. Especially when considering that one has been around for 10 years, and another has been around for 10,000 years.
So, what does it “mean” when X is worth more than Y? Nothing. It is the market working. Supply and demand shift prices constantly, and we shouldn’t be surprised when market forces change the ratio of precious metals to cryptocurrencies.