Are precious metals being demonetized by Bitcoin?

Mark Valek discusses with Saifedean Ammous, host of the "Bitcoin Standard Podcast," the question of whether precious metals, but especially gold, are being demonetized by cryptocurrencies like Bitcoin. Peter Young is the moderator of the debate.

Saifedean’s main points

At the outset, it is important to note that Saifedean in no way disputes gold’s historical role and that it legitimately holds that role based on its characteristics. However, things have changed with the advent of Bitcoin. In the 21st century, gold’s main problem is its low salability. Its value may be relatively high when you consider other metals like silver or copper, but the bottom line is that it is not very high. This is largely because we find ourselves in an increasingly fast-paced and interconnected world where gold is relatively expensive to transport. While gold has historically had the best stock to flow ratio, it has had to cede that title to Bitcoin. Before Bitcoin came along, there was nothing that could be used to build a backed currency system. Bitcoin is just that. Bitcoin has shown that it is a good alternative to gold and 2020 proves how many people are now choosing Bitcoin as a refuge against inflation rather than gold. The low supply also means that the potential for price appreciation is extremely high. Thus, in summary, it is the characteristics of Bitcoin that are better suited to our current times on which Saifedean bases his argument.

 

Mark’s main points

First of all, it must be mentioned that gold is doing its job despite everything. Even though the price in dollars is currently down a bit, the last few years show a significant price increase. The decline in the price of gold, which we have seen since the summer of 2020, is caused mainly by the rise in interest rates, as we have often mentioned. But the question must be asked how long this will be allowed to continue, as we have argued in other articles. With sovereign debt increasingly out of control, interest in alternative investment options is on the rise. Here, Bitcoin is prominent, but as we have shown, interest in gold is also on the rise. Currently, the demand for gold is around 10% industrial and the rest are various forms of store of value, be it jewellery, bars or coins. Especially in India, China but also in many Arab countries, the demand for gold is still extremely high. It is unlikely that this aspect will change in the near future. Another problem of Bitcoin, is its high volatility. It is not a given that this high volatility will decrease in the future. Unlike gold, Bitcoin has no counterweights to keep volatility low. Thus, as a short-term investment, Bitcoin is not so good. Finally, it can be said that gold is a physical thing compared to Bitcoin, which is exactly why many people value it.

 

Gold as the symbol of stability?

The moderator question to Saifedean deals with whether gold is not the perfect opposite to the unstable and infantile Bitcoin due to its extremely long track record? While the long track record argument is perfectly reasonable, Bitcoin’s existence demonstrates that it is a success. Moreover, the long track record didn’t save the horse-drawn carriage from the automobile either. It is entirely possible that this is the case here as well. Logically, it is not possible for any of us to look back in 5000 years and say what a long success story Bitcoin does not have. But we could be at the beginning of it.

 

Why do we buy gold jewelry?

If you look at silver, you can see that it is not really used as an asset in jewelry these days. Much more, it is used for aesthetic reasons. Saifedean sees the same change in gold. The gold content or silver content of jewelry also reflects this. The increasing use of gold as an industrial metal is on the rise, as evidenced by the small increase in price over the past few years. Gold is slowly being de-monetized.

 

Why should gold persist when there is a harder currency?

Historically, the hardest currency always prevails, so why should gold retain its position? The question to ask here is whether digital forms of currency will replace physical ones? As the pandemic has also shown, physical things are very important to people. It is thus questionable whether a majority of people can have enough confidence in a digital currency, as is the case with gold as a physical metal.

 

What happens to gold in the case of the Bitcoin standard?

Gold is the classic way to escape fiat currencies. If a bitcoin standard were now declared and bitcoin became the new medium of exchange, a major collapse in gold demand would be quite conceivable.

 

Click here for the Video: