The Role Of Bitcoin In The Emerging Global Economic Structure

Transform Group
Transform Group
28 October, 2020
  • Posted in News

Bitcoin is compared to gold because of the various characteristics that they both share, especially when it comes to storing value. For many years now, traditional investors and the global money system have had so much respect for gold. Until the current fiat money that is backed by ‘nothing’, the international monetary system rested on the “Gold Standard”.

As the evolution of money continues, the advent of digital currencies has introduced Bitcoin, which in many ways is compared to gold. Bitcoin has no physical attributes such as colour, weight, texture or malleability. However, many intangible characteristics of this digital element, which is ordinarily represented by series codes, has earned it comparison with one of the most valuable elements in history. As a matter of fact, there are already predictions that Bitcoin will eventually surpass gold as a store of value.

From Means of Payment to Store of Value

From the beginning, a lot of people expected that Bitcoin would become the money of the new dispensation. Over the years, underlying issues that affect scalability have defined the actual status and ideal use case for the world’s leading cryptocurrency.

According to John Deacon, Financial Services Lead at Dragon Bitcoin demonstrates limited elements of the characteristics of money. For example, due to speed and scalability issues it has not widely established itself as a payment mechanism, but it has begun to generate wider interest as a store of value. This is even clearer with its upward trend in price mimicking that of gold since early 2019 (and particularly since the start of the Covid-19 pandemic) based on the limited supply of Bitcoin over time compared to the extensive QE undertaken in relation to fiat currencies.

Notwithstanding the challenges that Bitcoin has faced over the years, Deacon notes that acceptance as a store of value is built gradually – gold has the benefit of a culture of use as a store of value over thousands of years. He explains that the features of Bitcoin can be (and have been) easily replicated by a number of other cryptocurrencies. Despite its entrenched first mover advantage, there is thus the potential for one or more other cryptocurrencies to emerge as a serious competitor to Bitcoin as a store of value and/or payment mechanism.

While many cryptocurrencies focus on a particular market segment or feature, Deacon believes that ultimately any replacement for Bitcoin is likely to be a product of superior technology that can avoid Bitcoin’s problems with scalability and energy usage, whilst maintaining a wider range of application.

The Abundance of Scarcity

In his opinion, Ian Balina, Founder & CEO of Token Metrics affirms that Bitcoin is the new digital gold. A major reason for Balina’s position is due to the fact that Bitcoin is probably scarce. He also believes that over time, the world’s first cryptocurrency will outperform gold.

Balina notes the Stock-to-Flow model which suggests that Bitcoin will become more scarce than gold by the next Bitcoin halving event in about four years from the time of writing. Gold he says has value because it’s scarce for the time being. However, no one knows precisely how much gold there is in the universe, and a lot of people anticipate gold’s value to decline if humans ever figure out how to mine gold from asteroids or other planets.

Balina explains that Bitcoin will continue to evolve and develop into the market’s main cryptocurrency for storing value. He believes that more regulation and adoption by large companies like PayPal and regulators will help with this. He is also bullish on the long-tail of other cryptocurrencies that cater to specific niches and use cases. However, Balina does not see Bitcoin being a currency that will dominate every use case.

He says:


Swinging Around The Dollar

Bill Noble, Chief Technical Analyst of Token Metrics also fancies the comparison between Bitcoin and gold. Noble notes that Bitcoin is going to be considered a legitimate part of the foreign exchange market. One of the reasons for Noble’s expectation is because the cryptocurrency will rise as the Dollar falls and fall as the Dollar rises. Gold acts the same way, so that Bitcoin will act like gold in that way.

Although Bitcoin has faced various phases of attack and criticism since it was created, Noble believes that it will be playing a significant role in the future of money. “Bitcoin is going to be a gateway into the crypto universe, he says. “It will be a way to purchase other cryptos or altcoins and also be a way for people to learn about crypto. Bitcoin will be everybody’s first experience”.

He continues by explaining that Bitcoin is also going to be a way for corporations to diversify cash holdings, and may also be a way to pay employees if income tax rates skyrocket. Since it is considered a commodity by regulators, it may be used like stock grants.

“I can see a day when companies buy other companies to get the Bitcoin on their balance sheets”, says Noble. “I can see high net worth individuals using bitcoin to prevent governments from implementing wealth taxes and taking money directly out of bank or brokerage accounts”.

In conclusion, Noble notes that Bitcoin represents the first generation blockchain implementation with the highest market capitalization at the moment. He does not see any other cryptocurrency/blockchain overtaking Bitcoin in this category over the long run either.

In agreement with Balina’s expectation above, Noble believes that Ethereum and cryptocurrencies that act as both a currency and technology networks facilitating other cryptos will overtake Bitcoin in market cap. He also believes that the overall market cap of digital assets is going to be higher than anybody can imagine.

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