Bitcoin breaks through $100,000, gold's "corner" is still being dug

Author: Mu Mu, Plain Language Blockchain

Recently,Bitcoin has fluctuated near the $100,000 mark, and finally broke through the important "psychological" mark of $100,000 today.In fact, the crazy rise of Bitcoin in recent times has long overshadowed the equally sharp rise of gold.Perhaps when some countries, including the United States, have successively proposed to use Bitcoin as a strategic reserve, the corner of gold has been dug by Bitcoin:

10 years ago (December 2014), gold was 250 yuan/gram, 10 years later, 630 yuan/gram, 2.5 times in 10 years

10 years ago (December 2014), Bitcoin was 360 US dollars/coin, 10 years later, 100,000 US dollars/coin, 277 times in 10 years

Several years ago, when the concept of "digital gold" was first proposed, almost everyone would look at it as a liar whenever someone talked about it. However, 10 years have passed in the blink of an eye, and Bitcoin is growing at an astonishing rate, so that today's Bitcoin has finally begun to shake the unbreakable position of gold for thousands of years...

01 Gold VS Digital Gold Bitcoin

Bitcoin is called digital gold because some of its characteristics are very similar to gold, but many people still find it difficult to associate physical objects with virtual assets. Perhaps this should start with the background of Bitcoin's birth...

1) Background of Bitcoin's Birth

Thousands of years ago (the specific date is not accurate), gold was already a "hard currency". In fact, it was first recorded as a currency in the Spring and Autumn Period and the Warring States Period more than 2,000 years ago, and has been used ever since. People's holding and use of gold are not restricted by any person, institution, or even country, and they truly achieve "private property is inviolable".

Historical records show that in 1717, Newton of Britain first proposed the gold standard (a monetary system with gold as the standard currency, and the country's gold holdings determine the amount of currency issued and the exchange value), and countries around the world subsequently adopted it one after another. It was not until 1971 that U.S. Secretary of State Henry Kissinger published a plan to leave the gold standard. The currencies of the United States and other countries were no longer dominated by gold, making the value of currencies no longer limited by gold reserves. This means that the modern monetary system can regulate depreciation and inflation as needed.

Later, during the 2008 global financial crisis, the United States printed a large amount of money to rescue banks. People found that the money in their pockets was forced to be diluted, which caused strong dissatisfaction and distrust of the financial system, leaving some text clues for Satoshi Nakamoto to express his original intention of creating Bitcoin.

This is why Satoshi Nakamoto left this sentence on the genesis block of Bitcoin, "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks (The Times' front-page headline of the day: The Chancellor of the Exchequer is on the brink of a second round of bailout for the banking industry.)"

The message traces left by Satoshi Nakamoto before his sudden disappearance have led many people to believe that Bitcoin is a response to the 2007-2008 financial crisis. On the message board for the P2P Foundation, Satoshi Nakamoto wrote an article in February 2009 introducing Bitcoin.

In the article, they expressed their distrust of reserve banks and concerns about assets: "Banks must be trusted to hold our money and transfer it electronically, but they will exchange it in the wave of credit bubble, and the reserves are small. We must trust them with our privacy and not let identity thieves drain our accounts. Their huge intermediary fees make small payments impossible."

2) What are the specific similarities between gold and Bitcoin

A. Decentralization
Gold: A natural resource spread all over the earth, anyone can dig out gold from a corner 

Bitcoin: A public blockchain with network nodes spread all over the world, becoming a resource that anyone can participate in mining

B. Mining
Gold: Mining gold requires workers, mines, equipment, electricity  ;

Bitcoin: Bitcoin mining also requires block producers, mines, equipment, and electricity

C. Scarcity

Gold: A non-renewable natural resource

Bitcoin: Upper limit of 21 million

D. Durability

Gold: Stable physical properties, never rust

Bitcoin: Strong and secure network, data on the chain is indelible

E. Anti-counterfeiting

Gold: Real gold is not afraid of fire

Bitcoin: It cannot be tampered with even if you invest a fortune

Having said that, although they are very similar in some aspects, digital gold still has many advantages that physical gold cannot achieve, such as:

· Bitcoin is very convenient to carry, you only need to remember a string of words, while physical gold is very heavy;

· Bitcoin can be verified for anti-counterfeiting anytime and anywhere, while physical gold is easy to counterfeit with metals of similar specific gravity (in recent years, there have been many cases of adulteration of gold jewelry);

· Bitcoin is easier to split and trade, while gold is the opposite;

· Even if Bitcoin's on-chain transfers are often as high as hundreds of millions of dollars, the handling fee is only a dozen dollars. It is difficult for gold and even the modern banking system to achieve such a low and fast transfer of assets.

02 Bitcoin has dug a corner of gold

1) Grayscale has repeatedly run ads to remind people that Bitcoin will replace gold

Grayscale launched its first Drop Gold campaign on May 1, 2019, and ran ads with the theme of "Drop Gold" to remind people that it is time to replace gold with Bitcoin.

In 2020, Barry Silbert, founder of Grayscale and blockchain venture capital firm DCG, tweeted that Grayscale has re-run the anti-gold ad "Drop Gold", which is now running on all major networks in the United States. This is a marketing campaign for Bitcoin. The video states that "digital currencies like Bitcoin are the trend of the future" and is intended to make Bitcoin a tool for storing value in the 21st century.

In fact, most people, including some financial institutions, have not taken Grayscale ads a few years ago seriously. At that time, some financial tycoons sneered at it. For example, the famous BlackRock CEO Larry Fink once said that Bitcoin is worthless! However, not long ago, Larry Fink changed his mind and said: BTC will subvert traditional finance.

Today, BlackRock has become a Bitcoin whale holding nearly 500,000 BTC.

2) Rapid inflow of spot ETF funds

As early as 2020, JPMorgan Chase, the bank with the largest balance sheet in the United States, released a report studying the success of Grayscale Bitcoin Trust (GBTC). The bank was once one of the biggest critics of Bitcoin, but the report admitted that the demand for Bitcoin even affects mature markets.

JPMorgan Chase pointed out that the demand for Bitcoin may erode the demand for gold ETFs. According to the study, the number of people flowing into the Grayscale Bitcoin Trust in October 2023 was significantly higher than that of the gold ETF. Therefore, the US bank concluded that GBTC may be able to capture some share of the gold ETF market.

coinglass: The current total market value of BTC ETF has exceeded 110 billion US dollars

As expected, after the Bitcoin spot ETF went online, it received a large amount of capital inflow, while the gold ETF funds flowed out significantly. Many financial commentators have pointed out that this is not a coincidence. The Bitcoin spot ETF has attracted a lot of money, and a large part of the money comes from the gold ETF. Some time ago, there were media reports that the scale of BlackRock's IBIT asset management has surpassed the largest silver ETF. Currently, BlackRock already holds more than 500,000 BTC, which is far larger than the largest silver ETF.

3) Bitcoin ranks among the top 10 global asset market capitalization

As of December 5, on the global asset ranking list from Companiesmarketcap, Bitcoin surpassed silver with a market capitalization of 2 trillion and ranked 7th in the world's asset market capitalization.Currently, the market capitalization of Bitcoin has also surpassed the total market capitalization of the world's four largest banks.

Global asset rankings top 10, source: Companiesmarketcap

Bitcoin is still more than 7 times away from the market capitalization of more than 15 trillion US dollars of gold. Perhaps in the eyes of many people in the crypto asset circle, this may not be a very difficult thing for Bitcoin, which has grown 277 times in 10 years.

Recently, SkyBridge Capital CEO/Senior Hedge Fund Manager Anthony Scaramucci said that Bitcoin's market value will eventually exceed the $16 trillion market value of gold. In an interview with CNBC, the founder of SkyBridge Capital called Bitcoin a high-quality asset that has never been seen in the past 5,000 years of human history.

Scaramucci said that Bitcoin still has a long way to go from gold's $16 trillion market value, but he believes that the distance will narrow over time as regulators approve BTC ETFs.

4) Bitcoin is playing a "safe haven" value

Most of the time, gold is actually a risk hedge against inflation in many people's portfolios, which can also be used as a safe haven asset. However, the fact is that gold has not outperformed inflation most of the time. But Bitcoin, which has been breaking new highs, has a fixed upper limit for the supply chain, and has been halved every four years, seems to have never let anyone down in this regard.

Due to the general consensus, gold has very low volatility, while Bitcoin is just the opposite. Therefore, while Bitcoin has higher growth potential, it also bears higher risks accordingly. However, Bitcoin's volatility is gradually decreasing, and Bitcoin is truly on the road to becoming an optional "safe haven tool" for countries with high inflation...

Recently, a new report from the International Monetary Fund (IMF), "A Primer on Bitcoin Cross-Border Flows," pointed out that BTC has become a necessary financial tool for preserving wealth in the face of financial instability. The analysis also pointed out that on-chain Bitcoin transactions, which are recorded on the blockchain and provide higher security, tend to be larger than off-chain transactions. This shows that the powerful security features of blockchain technology generally protect greater financial interests.

The report's authors said that Bitcoin transactions provide individuals in countries with high inflation with a way to stabilize savings and participate in global commerce in ways that local currencies cannot.

From another perspective, when missing out is also considered a "risk", when "alternative assets" Bitcoin is added to the portfolios of many investors, in many cases, they consider the risk of not being able to get on board the future Web3 technology in time and missing out on crypto assets.

When the crypto market deteriorates, some people will choose to exchange high-risk altcoins for more stable and lower-risk Bitcoin, which can stop losses in time to reduce risks without the risk of leaving the market. Therefore, Bitcoin is often used to hedge the high risks brought by altcoin assets.

03 Summary

In fact, it is not surprising that Bitcoin is gradually eroding the market share of gold. The relationship between "digital gold" and "gold" is like that between "digital payment" and "paper money". As time goes by, the usage of paper money is decreasing, and old gold may not be able to meet the needs of everyone, so Bitcoin fills this gap. As for whether Bitcoin can gradually surpass gold, it will take time to verify.