Why Bitcoin Will Eat Gold

Using gold as money was smart. It helped build civilization. It worked for thousands of years.

But goldbugs today are fixated on gold itself as a magical yellow rock that is the answer to everything by definition. It’s leaving them inflexible. Unable to apply the important philosophical underpinnings of gold to new iterations.

It reminds me of a famous Zen proverb: “All instruction is but a finger pointing at the moon; and those whose gaze is fixed upon the pointer will never see beyond. Even let him catch sight of the moon, and he still cannot see its beauty.”

Gold is the finger.

Frankly, gold has been a disaster lately. We are living through the absolute fantasy scenario that goldbugs have been waiting decades for. Fiscal and monetary policy is totally out of control. But over the last year gold is behind the S&P 500 and it arguably hasn’t even stayed on pace with monetary inflation. The last six months gold is actually down a significant amount.

Why?

Well, maybe it’s obsolete. Maybe Bitcoin is a revolution and it is ending gold.

This idea is hard for some to accept because of a couple biases.

First, for Conservatives, revolutions are a scary and bad thing. It reminds one of The French Revolution or The Russian Revolution or Mao’s Revolution. Political revolutions are almost always catastrophic affairs.

Bitcoin, however, is a technological revolution. And if Conservatives look at the political implications of Bitcoin, they may be quite pleased.

Second, money is not a field people are accustomed to think of as having any intersection with technology. Money is supposed to be dumb. It’s paper and rocks. The idea that technology could change our money just feels weird. It’s not really an argument against Bitcoin. It’s just jarring.

We used horses for thousands of years. It was an integral part of life. In fact, there may have been more innovation in money for most of our history — between varying currencies, banking systems, paper, gold, and silver — than there was with the horse. Then one day the horse was obsolete. Now they are beautiful and a luxury and a curiosity. But horses aren’t defining society. Maybe gold, like the horse, is obsolete.

Here are some specific ways Bitcoin improves upon gold.

Moving gold is hard. How would you bring $500,000 worth of gold with you to another country? Would you mail it and hope it gets there? Put it in your suitcase? Buy an airplane and fly it over? Would it even be possible?

With Bitcoin, it would be as simple as bringing a USB drive in your pocket.

Spending gold is hard. This is well illustrated by Peter Schiffy and his silly gram gold which no one cares about. An ounce of gold is $1700 and you can’t snap that in half to make an $850 purchase. Not that anyone would accept it. How would they know it’s real? What would they do with it?

Bitcoin, by contrast, is highly divisble. It can be instantly converted to dollars and so is easy for merchants to accept. To send it to someone just takes a few clicks and it’s there, anywhere in the world, in 15 minutes.

One of the big complaints about gold price, by gold owners, is that the price is rigged. Well this is possible because so much of the gold market is wrapped up in paper gold. It’s hard to own a lot of physical gold and thus keep the market honest.

Bitcoin doesn’t have this issue. It is, relatively speaking, exceedingly easy for any Bitcoin owner to own and have 100% control over their Bitcoins.

Now consider, most important of all, inflation. This is the key reason why people like gold. It’s a way to store wealth and protect versus inflation. But even here, in gold’s main use case, bitcoin performs better.

Gold inflates at roughly two percent a year. Further, any time the price of gold goes up, miners will double down and increase production which will then drive price down. It’s actually impossible for the price of gold to do that well.

Bitcoin, by contrast, is the only thing in the world where supply is unaffected by demand. Well, perhaps life itself is another. But Bitcoin supply is fixed at 21 million coins. No inflation.

Gold’s use case is inflation; But Bitcoin has less inflation than gold! Bitcoin does all the “Bitcoiny” things better than gold. And it also does the gold things better than gold too!

Now, there are some who will say, OKAY DAN, I agree with your arguments, but government is going to ban Bitcoin, so I’m not going to buy.

First of all, given the way its played out, and how big Bitcoin is and how many people own it and love it, it will be hard or impossible for the United States government to even try it let alone succeed.

But even more importantly, consider the assumption behind this anti-Bitcoin position: Bitcoin is so amazing, and powerful, and going to rise in value so high, and challenge governments to restrain their unchecked powers, that governments will take action against it.

Think about that. It’s to say that Bitcoin is so awesome that therefore you shouldn’t buy it. It’s to bow down and apologize for having an independent idea, even before authority figures take action against it.

Now, to be totally fair, gold does have some valid use cases which Bitcoin doesn’t. It makes jewelry, it’s used in some industrial applications, it’s a hedge in case of some unforseen problem with Bitcoin or in case Bitcoin somehow is eliminated, and gold can be used in an apocalyptic situation.

But if Bitcoin eats into many of gold’s use cases, and only the apocalypse use case remains, is that sufficient for gold to still gain in value? Will it be able to merely maintain its value?

Keep in mind, gold’s market cap is around $9 trillion. And at 2% inflation a year, people need to be buying net positive roughly $200 billion worth of gold a year. That’s just to keep the price the same. If some money that would normally go to gold starts to go to Bitcoin then the price of gold could go down. Note, this isn’t even considering the idea that gold holders start to unload their stash, this is only if Bitcoin eats into future inflows into gold. Even a marginal capture of that market could hit gold prices hard. If gold starts going down, and can’t even hold its value, added to all the other inferiorities it has versus Bitcoin, it may spiral down fast.

None of the above is investment advice from me. Everyone can make up their own mind. But this is my own thinking. I owned gold for years and still do but now I think I was wrong, and am skeptical that Bitcoin and gold can co-exist.

Maybe I’m wrong and you can decide that for yourself but I do think any gold owner would be remiss if not at least considering these arguments and refuting them to their own satisfaction.

Don’t stare at the finger. Look to the moon.