Does gold waver as a refuge? A May 1 Coinbase blog article suggested that several months after the COVID-19 pandemic, the efficiency of the gold market relative to Bitcoin (BTC) may decline. “Bitcoin and gold are fundamentally similar to rare and globally accessible value units,” the report noted, but recent “challenges” in the gold market “reveal the distinct advantage of Bitcoin.” on gold ”.
The event that caused this observation was a reduction in supply on the market. As Coinbase said: “According to the LA Times on March 24,” The gold market in New York is facing historic tightening as the global pandemic is stifling physical trade routes at the same time investors are investing. crammed into the metal as a refuge. . Investors and bankers would face severe shortages of gold bars and gold coins.
A flaw in the golden armor?
Is the world’s most popular value store losing its grip? And if so, will investors and gold bugs proliferate to BTC as new cover in times of crisis? As for the tightening of supply, some were doubtful. Campbell Harvey, J. Paul Sticht Professor of International Trade at Duke University, told Cointelegraph: “I’m not concerned with what is called short compression. You certainly don’t see it in the data, and people have been talking about it for over a month. “
Kevin Dowd, professor of finance and economics at the University of Durham in the UK, told Cointelegraph: “I imagine these physical delivery issues will be resolved soon. We bought gold recently and there was a delay in delivery, but only three weeks. I don’t see much connection between these delays and Bitcoin. “
The Coinbase report also suggested that the coronavirus pandemic had a minimal impact on Bitcoin mining: “The global mining ecosystem of Bitcoin seems resilient”, in contrast to gold production, where “refineries of however, miners and supply chains have been disrupted. ” In favor of BTC: “Bitcoin is not based on fragile physical supply chains and is truly accessible on a global scale.” Dowd, a BTC skeptic, was also unconvinced by this statement, telling Cointelegraph:
“I am almost certain [BTC] will run into mining problems along the way as the amount of Bitcoin mined is approaching its limit. What will happen when mining is exhausted? Do we really think the price will become stratospheric to compensate the miners, or do you think they will eventually be deported? “
The Coinbase report pointed out the relative scarcity of BTC, especially in light of the upcoming halving, noting that “the rate of Bitcoin’s new supply is ~ 3.6% per year and will soon drop to ~ 1 , 7% on May 12, placing it on the same level as the historic scarcity of gold. . “He also referred to advantages in terms of time and transaction costs. A BTC transaction worth more than a billion dollars was sent in September 2019 for an amount of around 700 dollars, for example The price to send a comparable amount of gold would have been exorbitant.
Related: BTC miners expect Bitcoin price to exceed $ 12,000 after halving the reward
The report concluded that, when compared by depositing, transporting or withdrawing capacity for gold, “Bitcoin has a technological advantage. And if current market conditions continue, Bitcoin could stand out even more. “
Gold still reigns
The big question, however, is whether the BTC will ever replace gold as a store of value, and here, Bitcoin’s continued volatility remains a major obstacle. John Griffin, who holds the James A. Elkins Centennial Chair in Finance at the University of Texas, told Cointelegraph: “Breaking gold supply chains can make trading in gold difficult, but should not not hurt it a lot as a store of value. . “He added that in the current crisis,” the BTC fell when the market fell and mostly recovered as the market recovered. So when it counted as having a hedge, it was a poor one. “
Harvey de Duke agrees, saying that the volatility of gold is around 15% on an annualized basis, which is roughly the same as the equity market, meanwhile, “the volatility of “cryptocurrency is huge. It’s four or five times the volatility of gold. It’s not something I would call a safe haven.”
However, BTC benefits from certain advantages because it is teleportable, which makes it useful in arbitration, for example, as Harvey recognized. A trader seeking to exploit the differences in the price of gold between New York and Europe, for example, might be tempted to ship physical gold from Europe for sale in the United States – but it would likely take a some time, and in this interval, the price difference could disappear. Crypto does not have this problem. “There is no physical shipment. Arbitration is much simpler for something that is pure digital asset – it’s an obvious advantage,” said Harvey.
Gold in cryptographic form?
If the BTC is not likely to become a store of useful value in the near future, this does not necessarily mean that cryptocurrencies have no role to play as a cover in future crises. In the past year, gold-backed stablecoins have appeared on the market, drawing Harvey’s attention. He added, “You delegate the storage of the precious metal to someone else and then you have a guaranteed part that you can do at a very low cost, quickly and safely.”
The market for gold-indexed stablecoins has increased 16-fold in the past 12 months – from $ 10 million to over $ 160 million – according to a recent Blockchain.com research report.
“Innovations in blockchain technology are quietly changing the paradigm of physical ownership of gold,” said Matthew Alexander, compliance analyst at Tether (USDT), in a recent Cointelegraph article, adding that stable coins backed by gold can fulfill the economic objective of physical ownership of gold. while overcoming many of the challenges traditionally associated – for example, “gold reserves must be physically protected against theft”, not a problem with gold-backed tokens.
Three stablecoins currently dominate the market – Tether Gold (XAUT), $ 87 million in market value; PAX Gold (PAXG), $ 44 million in market capitalization; and the DGLD token, with $ 25 million – representing 94% of the gold token market by value, according to the Blockchain.com report. DGLD was only launched in October by a consortium including CoinShares and MKS, as well as Blockchain.com. However, the new gold stablecoins look very much like gold exchange traded funds, or ETFs, said Harvey, adding:
“The gold stablecoin has to have a safe for the coin, and it has to have an audit, and security, and things like that, but the advantage of the gold stablecoin is that you can use it for transactions instant. It is much more stable than Bitcoin or Ethereum, and I see this as a growth area. “
Not everyone is convinced, as Mati Greenspan, the founder of Quantum Economics, asked Cointelegraph: “Why would someone prefer to hold a stable gold coin over physical gold?” Maybe for security reasons or because it’s teleportable? “There could be a slight advantage in holding symbolic gold compared to holding paper gold in a brokerage account, but it really depends on the level of trust you have with each issuer,” a replied Greenspan. “Physical gold far outweighs both. If the [electric] the current goes out, neither the tokens nor the brokerage gold will do you any good. ”
Griffin from the University of Texas sees potential in gold-backed chips. “A stablecoin that is audited and fully backed by dollars or gold could be a good store of value,” he told Cointelegraph, adding:
“But traders already have gold ETFs that are fairly liquid, so it’s not clear that a stable crypto would also be preferable – unless it is widely adopted, fully audited and with transaction costs lower. “
Gold ETFs won’t disappear anytime soon, Blockchain.com research manager Garrick Hileman told researcher, and they offer certain advantages over gold-backed tokens, such as greater liquidity and foot with regulators. Meanwhile, “Gold ETFs cannot be easily used for daily global transactions as currency, traded 24/7, or function as programmable cryptocurrencies” – for example, being integrated into smart platforms lending or borrowing contracts.
A new dialectic?
Overall, has there been a change in the balance of power between Bitcoin
and gold – or even stable coins and gold – as a result of the current global crisis? Harvey expressed his opinion on the matter:
“In the world of decentralized finance, I see that stable coins pose a real threat to mutual funds and ETFs. And gold-backed ETFs could be disrupted by stable coins that are gold-backed. “
Hileman, for his part, suggested that the debate might need to be reframed. Rather than Bitcoin against gold, it could soon become Bitcoin against tokens backed by gold – that is, competition in the world of crypto. He shared with Cointelegraph:
“The rise in gold-backed tokens presents intriguing competition for hardware assets for Bitcoin.[…] Unlike Bitcoin, gold is a much more mature and liquid asset. Gold has greater regulatory clarity and is largely held by central banks. The fact that gold can now be held in cryptographic form [i.e., gold] much more competitive with Bitcoin. “
A new kind of dialectic can emerge, in this vision, where gold (thesis) gives rise to its reaction, Bitcoin (antithesis), and where the tension between the two is resolved by stable gold coins (synthesis). However, the market for gold-backed tokens is still tiny compared to Bitcoin, not to mention gold. “The sure answer,” said Dowd, “is that it’s too early to tell.” It’s just so much tea leaf reading. “In the long run, I am a gold bull and a BTC bear. In the short term: who can say?