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Lessons From The Gold vs Bitcoin Debate

by Alan Daniel

Anthony Pompliano, the co-founder of Morgan Creek Digital and Peter Schiff of Euro Pacific Capital, participated in a debate hosted by CNBC Africa in June 2019.

We’ve taken a few of the key points from the debate and presented it here.

Macro-Economic Issues

Anthony Pompliano commented on the recessionary signals at play in the world today. Crypto Trader News has mentioned these factors in our recession watch. We noted inverted yield curves, downward growth projections by Christine Lagarde, Chief of the IMF, and other factors such as debt faced by governments such as Argentina, are ongoing issues.

Pompliano then commented on how governments may respond to these economic issues by printing more money and lowering interest rates. Indeed, we’ve noted negative interest rate policies proposed and utilized by several central banks across the world.

Stores of Value Benefit From Central Bank Stimulus

As central banks respond to economic issues and conduct actions such as decreasing the federal funds rates, implementing quantitative easing, and other activities, traditional stores of value such as gold typically increase in value. We’ve seen an overall increase in value for Gold instruments, ETFs such as TLT, other financial instruments that track long term treasuries. We’ve and even a notable rise in bitcoin prices over its decade long existence.

Advantages of Bitcoin

“There’s the big B bitcoin and the little b bitcoin, one is the digital asset, the other is the network you transact on, and that settles the payments. Its done more than 410 billion dollars of on-chain transaction volume [in 2018]. That is more than Venmo, Paypal, and others,” according to Pompliano.

Bitcoin is valuable because of its cryptographic security, scarcity, divisibility, portability, medium of exchange.

Bitcoin is a piece of software that runs efficiently and is comparable to those algorithms that aid in everyday life applications. Google, Uber, Spotify, and other software-based programs provide substantial value and operate algorithmically.

The digital system and digital asset of bitcoin gain value as more people join the network and use it.

Advantages of Gold

Gold is Not a Medium of Exchange
“No one uses gold to buy coffee” is a remark by Pompliano that deems accurate. Investors buy gold as a store of value. They purchase gold to preserve value in times of economic uncertainty, currency debasement, and other macroeconomic factors.

Gold used to possess both traits, and it used to be a store of value and a medium of exchange. As time passed, dollars took over, and gold became a store of value. Gold, at the present moment, is used as a store of value and not as a medium of exchange.

Schiff says that people don’t use gold as a medium of transfer because people get paid in dollars, landlords ask for dollars; simply, the dollar is ubiquitous and utility-oriented.

Gold May Be Hard To Replicate

Schiff argues that gold is hard to replicate, unlike cryptocurrencies, that may be easily forked. Sure, you can fork bitcoin or another cryptocurrency, but the network must shift over. Only a few coins have real volume and value in the cryptocurrency industry.

Gold Value
Gold’s value is derived from the physical properties that make it “desirable and useful”, according to Schiff. Indeed, Schiff is right, and gold has substantial demand in the jewelry industry. Rising countries such as China also account for an increasing percentage of consumption of gold.

According to the data, most of gold’s value comes from its desirability and demand in the jewelry industry. Thus, if consumer appetite for gold jewelry purchases subsides, gold will decrease in value. The question becomes, global gold jewelry consumption is still stable; desirability is still high and will likely remain high for the foreseeable future.

Second, central banks still respect gold and use it for reserves; as such, it still holds remarkable value by association with these financial institutions.

Bitcoin Is Still Speculative while Gold is an Established Store of Value

The debate concludes that bitcoin is still speculative, while gold is an established store of value. Bitcoin has existed for ten years, while gold has been around for more than 700 hundred years. Many believe that bitcoin will have more growth potential, while gold will continue to act as a stable store of value.

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