Why Bitcoin Isn’t Gold 2.0

May 15, 2019

Juan Carlos Artigas

Juan Carlos Artigas is director of investment research at the World Gold Council. He authors many of the gold research reports published by the WGC and is an expert on the factors affecting the price of the yellow metal.

Artigas argues that gold is a unique asset with characteristics not found in any other asset, including bitcoin specifically and cryptocurrencies more broadly. ETF.com recently spoke up with Artigas to get his views on the bitcoin versus gold debate.

(For the flip side of this gold coin debate, read: “‘Drop Gold For Bitcoin”)

ETF.com: There has been a push by some cryptocurrency enthusiasts to get investors to drop gold in favor of bitcoin. They're calling bitcoin "gold 2.0,” “digital gold” and such. How do you respond to people who’re trying to get investors to shun gold in favor of bitcoin?

Juan Carlos Artigas: That speaks to the misunderstanding on the role gold plays in society, not only in the monetary system but more broadly, as part of our modern culture.
Gold has been used as means of exchange and as a currency for millennia—it was backing up global currencies up until 1971. Even today, gold forms an integral part of foreign reserves for central banks around the world in developed and emerging markets.

But there's also a large portion of gold that’s used for other purposes, such as in jewelry and technology. In fact, many of the computers used to mine bitcoin rely on gold components to properly function.

We certainly agree there’s a lot of innovation and technological changes that’re going to improve many aspects of financial markets—including blockchain technology. But it’s not accurate to say that bitcoin in particular, or any specific token for that matter, is replacing or should replace gold, because they serve very different purposes.

I understand why some people may want to use gold as a marketing tool to try and get investors to do something. After all, everybody in the world knows about gold. Tying another asset to gold is a good marketing strategy, but the data doesn’t support the idea of bitcoin replacing gold.

ETF.com: What would you point to in order to convince someone that gold’s still superior to bitcoin, or at the least, serves a different purpose than bitcoin?

Artigas: If you look at the performance of cryptocurrency tokens over the past five years, there’s been a pattern of very strong rallies and then substantial pullbacks in the price.

People claim that these tokens are safe havens, but in Q4 [fourth quarter of 2018], we saw exactly the opposite. When the stock market pulled back, cryptocurrencies were plunging along with it. On the other hand, gold prices increased.

Investors need to understand gold is very unique, because it has a dual nature that pretty much no other asset does. On the one hand, there are physical applications— jewelry and technology—that’re positively linked to the expansion of the economy.

On the other hand, you have the investment side that’s countercyclical and is linked to investors' use of gold as a way to preserve capital, as a safe haven.

This dual nature is very unique to gold. If you look at other assets, you’re not going to find something that behaves like gold from that perspective.

ETF.com: You’ve pointed to the fact that gold has acted much more like a safe haven than bitcoin during periods of market turmoil. What about the idea that bitcoin has a leg up on gold because its supply is permanently capped?

Artigas: Bitcoin supply may be fixed, but there are more than 2,000 cryptocurrencies out there. Nobody knows if bitcoin is going to be the one that remains instead of ethereum or something else that comes up that has a better program.

In the end, the way society ends up using blockchain may be completely different from the perspective of a currency. It may be a different solution even if it's still utilizing tokens.

I don't know how bitcoin will look in the future. What I can tell you though, with a good degree of confidence, is that gold will remain an asset that has a very unique set of properties through its dual nature and through its supply-and-demand dynamics, that make it useful for many investors, especially when they’re trying to hedge systemic risks.

Bitcoin today may not be what bitcoin is in the future. Cryptocurrencies today aren’t necessarily what cryptocurrencies will be in the future, because they’re still in their infancy, and there's still a lot of stuff in terms of regulation and other considerations that may change the behavior of those investments.

​Email Sumit Roy at [email protected] or follow him on Twitter @sumitroy2

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