Anybody Can Build a Crypto
Four Differences Between Crypto and Gold
Cryptocurrency owners are divided into two types.
When the price of Bitcoin was still below $50,000, some people I know went ahead and bought Bitcoin. They were not Bitcoin or crypto fanatics; they just wanted to make some money. This is the first type.
Then, there are those who are strong advocates of crypto. They question the intrinsic value of gold and say that crypto is as good as gold, if not better. This is the second type.
While I’ve found the arguments made by the second type to be logical, they can’t shake my knowledge that reality on the ground is different. Having thought the arguments through, I am sharing here four significant differences between crypto and gold as I see them.
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And here are the four differences between crypto and gold.
Gold is a Store of Value. Crypto is Not.
What is a store of value? It’s a place where the value stays the same if you put your cash in it. So, if you could buy a breakfast with $2 today, and you put $2 in a store of value today, two years from now, you could take what’s in the store of value and buy yourself the same breakfast. If you had not put $2 in the store of value, you would need to take out $3 from your pocket for the breakfast.
This does not mean you should keep all your cash in a store of value. A store of value does not generate profit. Compare, say, Apple the company and gold the store of value. People who bought Apple stock from early on enjoyed dividends and an increase in stock price up to today. If they had bought gold, the price of the gold would not have increased as much as the Apple stock. They profit having bought Apple stock.
That’s the past. Today, who is to say the price of Apple stock won’t fall over the next two years? Or perhaps the price would remain unchanged. If it remains unchanged two years from today, and all you have is Apple stock, you’d only be able to buy yourself two-thirds of a breakfast. In such a case, you lose having bought Apple stock.
Therefore, a store of value is an excellent place to put all of your cash when there is no better place to put it. Even if there are loads of investment opportunities, wise people still keep some of their cash in a store of value, usually gold, for rainy days.
Why gold is gold a store of value? Three reasons that come to mind:
- Gold was first. It’s the original money. Currencies were created to represent gold.
- Major currencies are backed with gold in some way. The reserves of their central banks are filled with gold and currencies backed with gold.
- Gold cannot be created out of thin air.
Of all crypto, Bitcoin is the only one that is limited in quantity, which makes Bitcoin the most likely crypto to back central bank currencies. Like gold, Bitcoins cannot be created out of thin air.
No, wait. The 21 million Bitcoins are created out of thin air. It’s only that the p̶r̶i̶n̶t̶i̶n̶g̶ mining stops after 21 million units. I can’t believe I wrote printing.
I googled, and it said there were 18,925,137 Bitcoins as of 10th January 2022 and that the last Bitcoin will be mined around 2040. So that’s when Bitcoin is most likely to back central bank currencies. After 2040.
Imagine a scenario. It is some time after 2040. The Bitcoin rush is over. The dust has settled. The central banks of the world get together in Davos to discuss dropping gold from their reserves and replacing it with… Bitcoin!
It is a plausible scenario. After 2040.
Until then, we can continue buying crypto as an investment or a get-rich-quick scheme, but not as a store of value. As with any investment or many-making scheme, please note the risks.
Gold is Sensitive to Money Printing
Two years ago, businesses suffered because people stayed at home to escape the Coronavirus. When the businesses suffered, they laid off workers, which led to even more people staying at home. Governments began printing cash like crazy to stimulate the economy.
The impact on the gold price can be seen today. As I am writing this, gold is at $1870 per oz. Precisely two years ago, it was $1570 per oz. That’s an increase of 13% that corresponds with the drop in the cash value and purchasing power.
At precisely two years ago, the money printing craze was just starting and was not in full gear. It is still early in the year right now. The gold price could increase further, just as the prices of everyday goods are increasing every day.
Compare this to Bitcoin. The price at the time I am writing this is $44,000. Two years ago, it was $9,000. That’s a whopping 388% increase. It’s enough to make me want to kick myself for not buying Bitcoin then. Regardless, the point here is that the price increase of Bitcoin does not correlate with the increase in the money supply.
Gold and Crypto are Sensitive to Geopolitics In Different Ways
On 10th February 2022, the US announced that Russia would definitely invade Ukraine. The price of gold started rising, from around $1820 per oz to $1860 on the same day. I was watching the gold price and wondered what was going on. It was the next day that I read about President Biden’s announcement.
I was sure the gold price would pull back the following Monday. But it climbed even further, to nearly $1880. Then, on the 15th, Russia announced it was pulling back troops. The price of gold plummeted to $1845.
During the period, Bitcoin curiously did the opposite. On the 11th, when the gold price was shooting up, Bitcoin price moved down from $43,500 to $41,500 on the 14th. On the 15th, when gold fell, Bitcoin moved up to $44,400.
I can only conclude as follows: Either Bitcoin holders don’t trust Bitcoin in an environment of geopolitical uncertainty, or they are just doing their own thing, blissfully unaware of the world’s troubles and fears.
Anybody Can Build a Crypto
Let’s go back to our scenario in Davos after 2040. Everything is going well. The governors of the world’s central bank are excitedly talking about the benefits of Bitcoin over gold. One smart alec stands up. He says, “Why should it be Bitcoin? Why don’t we build a completely new crypto that is better than Bitcoin? We will call it Bitcoin X.”
Bitcoin X does not have to happen after 2040. It can happen today. Say that the US, Russia, or China finally decides to own crypto but thinks that the Bitcoin space is a little overheated. What’s stopping them from creating Bitcoin X?
Like Bitcoin, Bitcoin X will have a limited number of units: 21 million to match Bitcoin, or 21 trillion to be closer to the US debt number of $30 trillion.
And the good news for existing Bitcoin holders? You can use Bitcoin to buy Bitcoin X.
You know, never mind the US, Russia and China. It’s a great idea. I will do it. Only I will call it Bitcoin 2. That will leave room for Bitcoin 3 in the future.
Conclusion: Buy Gold Today
Mansa was founded in 2020 with the projection that people will be seeking gold as a store of value for their cash. Unlike other gold investment platforms, Mansa aims to make gold as cheap and practical as possible for people. This is done through automation and by cutting out the traditional dealer. On Mansa, users trade with each other.
Right now, the stock market and crypto prices are on a downtrend. If the trend continues, and many people expect it will, you could lose if you put your cash in them. With inflation is on the rise, you would lose even if you hold cash.
Unless you are among the few who know where to invest in an environment of rising prices, gold is where you need to put your cash, whether you choose Mansa, an online dealer or a brick-and-mortar dealer.
