Bitcoin is not Digital Gold

By MikeZillo | Smart Crypto Investing | 4 May 2021

I was reading just a few moments ago an article on business insider (here) where Goldman Sachs analysts state that Bitcoin is not comparable to digital gold.

Continuing reading it states, more precisely that Bitcoin can no longer be simply a safe haven asset.

A clarification

A safe haven asset is any asset that allows you to resist the natural inflation of current money.

So, if I want to preserve from devaluation the sum that with many sacrifices I have managed to set aside I have to convert it into an asset that is not affected by devaluation.

This is why some people buy works of art, collectible wines or gold.

All goods that, although niche, have a very precise market quotation that is bound to rise over the years.

In this way the growth in value, in order to preserve the capital, must be, at least, equal to inflation.

Let's see the assertions of Goldman Sachs analysts:

  • Btc cannot, at the moment, become digital gold as the energy use is high and many investors prefer other assets (in this case other cryptocurrencies)
  • Another reason why btc cannot become digital gold is that there are no usage scenarios.

For the first point we can all extremely agree that Mining Farms are quite energy intensive.

This factor, however, influences not only the choice of safe haven asset, but well before influences the miner.

The miner is influenced by this factor because if the cost of energy is too high, it will erode part of the profit.

After all, miners are also entrepreneurs, remember that a mining farm is not made in the garage of the house, and then this factor is preponderant.

This is why renewable sources are preferred: the cost of the material is equal to 0. The only costs that remain are those related to the plants of "collection" and distribution.

Always analysts have asserted that investors could opt to channel their interests on Ether....

But Ethereum has not yet made the switch to Ethereum 2.0, so transaction validation is still on PoW.

Agreed being GPU based and not ASIC based the consumption is lower, but the consumption is still very high!

Another point on which Goldman Sachs analysts give importance is the fact that Bitcoin has no usage scenarios.

This lack, which obviously other assets have, prevents Btc from having controlled volatility.

But what is meant by usage scenarios?

Usage scenarios means how a safe haven asset can be used.

At this point it seems almost evident to me the absurdity of the statement: leaving aside the possibility of converting gold in order to have immediate liquidity.

Let's imagine to be the owner of a work of art: do we have the same possibility of selling it as we would have with gold or with Bitcoin?

Let's try to follow PlanB Macro Investor's reasoning for a moment, where they adopt a Stock-To-Flow pricing method.

This method is based on the supply of an asset relative to what is coming into circulation in the market.

So we find that gold's STF ratio is 62, meaning it would take 62 years of gold production to be able to generate the current stock of gold.

As for silver, its STF is equal to 22.

If we switch to run the same forecasting model on BTC, we have a discovery: STF is at 25!!!

Obviously these are all forecasting data, but they highlight very well how Golden Sachs' assertions are a bit approximate.

Meanwhile, for all of us traders and, for a good portion of hodlers, in March 2021 Golden Sachs announced that it was reopening its trading desk and the price of Bitcoin shot up to $49,000...

It would almost seem as if Golden Sachs is well aware of how fundamental analysis works and is putting all their efforts into it to get a price drop.

Perhaps to buy more of it?

Looking forward to your comments!

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MikeZillo Verified Member

Daily Trader, Mining Farm Project Manager, Blockchain consultant, Cryptocurrency evangelist. You can find more videos here Telegram: @mikezillo

Smart Crypto Investing
Smart Crypto Investing

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