“Digital Gold” and “Safe Haven” are the terms Bitcoin maximalists often use to promote it. Gold bugs believe that gold is the best inflation hedge. A war broke out between Russia and Ukraine in late February, and it sure did impact the economy of both these countries. Who is winning the Bitcoin vs gold debate now? We tried to answer this question.
Both Bitcoin and Gold are, in a way, competing to be the ideal money and a safe haven. For any currency to be ideal money, it should have the following characteristics:
Gold has most of the properties of ideal money. It is one of the oldest forms of currency used by civilizations. However, it lacks portability. On the other hand, Bitcoin checks all the boxes, though fungibility is a debated topic in the community. But, Bitcoin falls behind in terms of cognizability as the digital currency is not as widely adopted as gold. Gold is a precious metal that is mined and processed. Yearly 2,500-3,000 tonnes of gold is mined, and the industry is regulated. Bitcoin has a fixed supply of 21 million BTC, and new coins enter the market through mining, a process for recording and validating transactions. On average, 900 new Bitcoins enter the market per day at the current block reward of 6.25 BTC per block. The supply of Bitcoin is predictable and embedded in the protocol. Gold used to be the backbone of the economy until the 1970s when the governments unchained it from the currency and introduced a fiat system. The search for the new ideal money continues to this day.
Bitcoin vs Gold During War
Bitcoin has been outperforming gold in terms of price in the last few years. The bull run in the last two years not only brought in institutional investors but recognition as a legal tender in El Salvador. Compared to Bitcoin, Gold traded sideways the whole time. This isn’t necessarily bad and shows the stability of gold as a safe haven. It’s a great time to be a Bitcoiner. However, it is at the time of the economic instability and conflict that puts the “digital gold” and “safe haven” status to test. The time has come.
On Feb 21, Vladimir Putin recognised the two breakaway regions Donetsk and Luhansk as independent. The news sent shockwaves to the stock markets and crypto too. At the time, Bitcoin was trading above $37,500, and Gold was at $1895. Three days later, Russia started a “special military operation” and began striking major cities in Ukraine. As a surprise to the Bitcoiners, the price plummeted by over 8.5% to $34,337 the same day. Gold stood strong. The price rose by over 4% and almost touched a two year high which can be seen in the graph. Some thought it was the end of Bitcoin’s “digital gold” narrative, but the story took a turn in the next few days.
Bitcoin saw a sharp increase on Feb 28, and the price crossed $40,000. Gold went on a slight downward trend during the same period, which can be seen in the graph above. The price of Bitcoin continued to grow and almost reached $45,077. Some credit the rise to the expectations that demand will increase in Russia to circumvent the sanctions.
Bitcoin vs Gold: Who Won?
The Bitcoin community does believe that Bitcoin is the winner, and gold bugs argue that volatility is a big issue and the use cases are very limited. Gold has several industrial applications and not many when it comes to Bitcoin. But Bitcoin does what it’s best at, censorship-resistant payments. At the time of war, gold reserves may help the governments, but Bitcoin sides by the people on the ground. Donations are flooding in Bitcoin but not in gold. When the fiat is sinking during the conflict, Bitcoin can be an alternative. It’s still too early to answer this question. Gold bugs and bitcoiners have common traits. They believe in an ideal form of money, a store of wealth, and want the governments to stay away from their wealth. Bitcoin is in the early stages, similar to the internet in the 90s. There will be many more tests ahead for Bitcoin to prove whether it’s a safe haven or only a medium for peer-to-peer transactions. Till then, the debate for the ideal money, digital gold and everything else will go on.
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