With strain on the physical gold market, is Bitcoin the next best bet?
In times of economic crisis, gold has been the tried-and-true solution for those looking to protect their wealth for decades, even centuries; indeed, the metal has held its value for millennia, is universally loved, and is scarce.
Gold under pressure
The safe-haven status of gold has been proven once again over the past few months, with the value of gold reaching $1,700, its highest price in years, at the start of March. The idea with gold is that due to its scarcity and ability to retain value, it should be a good investment during times of economic stress, even amidst the unprecedented ongoing coronavirus crisis that has devastated the stock market, oil, and Bitcoin.
The issue is: there’s been a shortage of physical gold; with bullion shops closed, mints shut down across the world, and mines presumably not operating, the archetypal gold bars you see in movies have become even rarer than they have before. In fact, derivatives that offer physical delivery of gold have had to cancel or delay shipments of said physical gold.
And with this, the value of physical gold and paper gold (futures, derivatives) has deviated. CryptoSlate’s search for one-ounce gold coins and bars on eBay yielded prices above $1,800, more than 10% over the price of gold futures.
How will this affect Bitcoin?
Many are divided over what exactly this means for global markets, but according to Preston Pysh, a noted financial commentator and prominent Bitcoin bull, the shortage in physical gold could be big for the leading cryptocurrency.
If the paper and physical gold market continues to have a separation in price AND the wait to receive physical gold is measured in monthS, where do you think those paper investors are heading to effectively short fiat?
— Preston Pysh (@PrestonPysh) March 30, 2020
He made his point when he asked his followers on Mar. 30 what markets investors are most likely to trade if they want to “short fiat” now that gold is under stress. Pysh didn’t mention “Bitcoin” but, as shown by his replies to comments made on his tweet, it is clear he sees the cryptocurrency as one of gold’s alternatives.
Indeed, many have begun to believe that with a strong gold price but a stressed bullion market, it makes sense for Bitcoin to start absorbing some of the demand gold would normally see in times of crisis.
Pseudonymous industry commentator “Zender” explained in an extensive thread that the shortage of physical gold will expedite BTC’s rise to become an investable hard asset, “because of the 24/7 availability” and because physical gold will be difficult to spend in a digital world. Furthermore, it’s much easier to seize one’s physical gold than one’s Bitcoin.
Not to mention, unlike gold (which can be found on other planets in vast quantities), Bitcoin is absolutely scarce with a strict 21 million coin limit, enforced by a network of decentralized miners across the globe. That alone, the scarcity model from PlanB predicts, will make BTC more valuable than gold over the coming decades.