Like many of you, we were glued to the Bitcoin vs Gold debate between industry heavyweights Michael Saylor (Bitcoin Billionaire) and Frank Giustra (Gold Billionaire). As expected, it was a fascinating discussion, with plenty of insight to digest.
The debate covered a huge range of key issues and arguments; we’ve reviewed and analysed some of the big talking points – as well as highlighting some of the major points that weren’t mentioned.
According to Michael Saylor, Bitcoin is secure and possesses many of the characteristics of monetary gold, but without its “defects”. This echoes the classic standpoint of Bitcoin as “new” or “digital” gold and its devotees will undoubtedly believe this encapsulates the entire argument in just one pithy phrase.
Frank Giustra, on the other hand, clearly doesn’t. He makes a point we’ve demonstrated on these pages many times over the last few years – Bitcoin has never been tested in a crisis, whereas gold has been valued, relied upon and trusted as both a means of saving as well as money, for centuries. Gold has stood the test of time.
Giustra also questions whether Bitcoin will be accepted as a mainstream method of payment. Whilst Bitcoin and other cryptocurrencies are easily accessible as a store of value, it’s much more difficult to actually spend them. Whilst some of the world’s largest retailers and companies do accept payment in Bitcoin and the number is growing, it’s still very uncommon to be able to use cryptos with smaller businesses. Until this changes, Bitcoin isn’t a viable alternative as a means of everyday exchange, he argues.
There are two other major factors that are likely to prevent Bitcoin from establishing itself as an everyday currency – slow transaction processing times and high fees. Bitcoin has only been able to process a maximum of seven transactions per second and there are many factors which can slow down transactions – taking as long as five days in 2018. In terms of fees, Bitcoin transactions are prohibitively expensive – the average fee over the last week is around $45, meaning that it is an unviable option for most everyday purchases… imagine spending $5 on a coffee and being hit with ‘gas’ fees of $45!
As Frank Giustra highlighted, quantifying the risks of Bitcoin is hugely important. Whilst we all know that investments can fall in value as well as increase, Bitcoin can sometimes be positioned as an almost risk-free asset – this is very dangerous, especially as it is such an attractive proposition for private investors.
However, as Giustra pointed out, Bitcoin shouldn’t be worried about gold; “central banks are the ones you need to look out for”. This is a crucial point that we’ve raised here many times. Governments need to control their currency, making ownership of cryptocurrencies illegal could easily happen. We’ve already seen it in China and India is once again looking to ban Bitcoin. What would be the impact of this? It is likely to curtail Bitcoin to the point where only a minority use it. This could have a catastrophic impact on its value and the portfolios of its holders.
On a related note, Bitcoin is unregulated. It is the wild west of global currencies; this doesn’t put off investors, in fact for many the lack of regulation is another advantage of Bitcoin (our debate preview delved into regulatory details). However, this also makes it very attractive to manipulators as well as another potential threat to governments – PayPal Founder Peter Thiel recently went as far as describing it as a “Chinese financial weapon”.
Once again, taxation is key. Governments won’t want to risk losing out on potentially billions in tax revenues whilst an unregulated, anonymous currency like Bitcoin flourishes. Many believe it is inevitable that central banks will look to control or curtail cryptos – in the UK, we’ve recently seen clear signs of this as the Bank of England announced the launch of a Central Bank Digital Currency (CBDC) taskforce; what is a CBDC if not an attempt to intervene in the digital currency arena?
No one questions the longevity of gold and its role as currency throughout moments of monumental change throughout history. However, Bitcoiners often claim that gold has had its time and suggest it is no longer fit for purpose – this is incorrect as Glint’s payments ecosystem allows gold to be spent as an everyday currency whilst also performing its timeless role as a store of value.
Saylor claims that Bitcoin has matured as an asset and is appreciating at 200% per year. This seems unsustainable – Giustra suggests as much by remarking how it “sounds more like a bubble environment than a store of value”. Whilst Saylor claims that Bitcoin is an asset rather than a currency – which should be held over the long-term – what happens if this does turn out to be a bubble?
Regardless of the hugely impressive recent performance of Bitcoin, there is one irrefutable point – Bitcoin has not been tested over the long-term and has not been around long enough to demonstrate its viability as a store of value.
Saylor made one particularly revealing comment during the debate: “Gold is a commodity, Bitcoin is a scarcity”. This provides a fascinating insight into how he, and no doubt, many other Bitcoiners, view gold’s position. Gold is a finite resource, we cannot simply create more of it – this is part of its intrinsic value and why it has been viewed by many as a trusted and reliable asset for thousands of years.
On the other hand, Bitcoin is created by humans. There may only be 21 million coins in existence but who’s to say this cannot change? History is full of surprises that were seemingly impossible, until they happened. By its very nature, Bitcoin is subject to human intervention and at risk of corruption – whether that is caused by the best intentions or through malign forces.
This poses an interesting question, does the supply dynamics of Bitcoin prevent its use as a currency? We’ll find out soon enough.
Gold ownership is widely spread amongst people around the world. The world’s central banks only own 17% of the world’s gold.
The complete opposite is true of Bitcoin. A recent Bloomberg article revealed that 95% of Bitcoin’s market cap was owned by only 2% of wallets; even if the figure is lower (71.5% according to other research), these ‘whales’ hold undue influence over the asset and can impact its already high volatility – 75% to 125% compared to 8-20% for gold.
One of the most telling points made during the debate was Giustra’s anecdotal suggestion that Larry Fink, CEO of Blackrock, sees little real institutional investment in Bitcoin. It will be fascinating to see if this changes over time.
“None of us have experienced an investment climate like today” – Giustra’s words certainly put 2021 into context. This supports his message to private investors of the importance of diversification. And for many, gold is the ultimate hedge in times of uncertainty.
Of course, more big-tech and finance companies are embracing Bitcoin – Tesla being one of the highest profile recent institutional investors. Saylor clearly believes that this is only likely to accelerate in the future. However, as Giustra highlights, Bitcoin isn’t owned by any central banks and it is highly debatable that it would become a reserve currency. This is partly down to a need for control and is one of the motivations behind the development of CDBCs.
Bitcoin appears to be behaving like a growth stock, time will tell how it performs over the long term.
As expected, it was a forthright and hugely insightful debate, but the panel missed out on the opportunity to cover some crucial topics. Some of these we discussed in our preview earlier this week.
Firstly, it is a shame that the discussion focussed on the two assets as a store of value and offered little in terms of gold as a means of exchange. Giustra believes that gold is no longer used as everyday money, whilst Saylor even claimed it is a myth that gold is money – the opposite is exactly what Glint offers with its global payments ecosystem allowing clients to spend, save and share real gold through our app and Glint Mastercard®.
Also, the scalability of gold as a currency wasn’t discussed. Through the digitalisation of gold with Glint, instant and secure cross-border payments in real gold are possible at the touch of a screen, these don’t require huge amounts of energy either, which is often one of the main criticisms of Bitcoin.
Finally, gold is increasingly relevant to younger consumers – recent research from the Royal Mint shows a 32% increase in millennials turning to gold. Through Glint, gold can now be used in the same way as many cryptocurrencies – traded, spent and sent to friends and family. We’re working hard to develop a payments alternative that positions gold as a relevant and viable currency for the 21st century.
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