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Trump Wakes the Gold and Bitcoin Bugs

Dana Blankenhorn

A recent breakout in the price of gold has gold bugs excited.

Trump Wakes the Gold and Bitcoin Bugs

Source: Jeremy Vohwinkle via Flickr (Modified)

The price has shot up $40 per ounce in the last week, from less than $1,280 to almost $1,320 per ounce. “Global tensions bolster safe-haven demand,” is the kind of headline that is going to get aficionados of gold stocks very excited.

But this is a debate the other “money is just a construct, man” fans, the bitcoin (CCC:BTC-USD) bugs, very much want to have. That’s because the price of bitcoin, relative to gold, has shot up in 2019. You could buy a bitcoin with just 3 ounces of gold at the start of the year. It now costs 6.5 ounces.

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Thus, gold bug Peter Schiff was walking into a trap when he agreed to debate bitcoin advocate Barry Silbert at a recent SALT conference in Las Vegas. Bitcoin fans had a field day.

But did either side have a point?

What’s Money?

The serious question was, what’s money?

The serious answer is that money is whatever you say it is. Money is used to exchange real value, to arbitrate between, say, stories written by this writer and the good people at InvestorPlace. It’s more a verb than a noun.

What you want out of money is stability. If you’re shipping a tanker of oil across the seas so you can refine and burn it, you want the value of that oil to be the same on both ends of the voyage.

In those terms, neither gold nor bitcoin is money. The price of gold peaked in 2011 at $18,000 and crashed in 2013 to its present trading range. It remains volatile. Bitcoin, meanwhile, zoomed to $20,000 in 2017, crashed to $3,200 late in 2018 and recently traded at $8,500.

Gold and bitcoin, in other words, are both speculative assets, not money, because they don’t offer the stability of money.

Usefulness

The question then becomes which is more useful and when?

Schiff argued that because central banks buy gold and don’t buy Bitcoin that gold is money. Money was once backed by gold and was defined as gold. When everything else crashes it could happen again.

Malaysian Prime Minister Mahathir Mohamad agrees. He wants Asian countries to create a pan-Asian currency backed by gold because, he says, gold’s value is more stable.

Silbert, CEO of Greyscale Investment, argued that bitcoin is better because it’s useful. Thousands of jobs are being created in blockchain start-ups. Bitcoin’s price has proven its resiliency. As money becomes electronic, bitcoin’s value can only grow, he argued.

What’s True?

What Schiff and Silbert agreed on is that “fiat currency,” the kind endorsed by central banks, is the riskier bet.

Fear sells gold and fear is also propelling bitcoin. Fears of a trade war, of governments using their currencies as a weapon in that war, is propelling both assets.

If bitcoin were to hit $50,000, as some crypto-bulls predict, it would prove bitcoin isn’t money, because money’s value lies in its stability.

Bitcoin advocates have yet to answer for things like flash crashes, thieves, the shut-down of exchanges, and all the other scams that remain prevalent in their crypto world. Bitcoin bulls insist their asset is an alternative to government control. That means there’s no cop you can turn to when you’re robbed.

The Bottom Line

In the end, the asset you choose to hoard is the one that’s right for you. You can buy rights to gold and move with those rights, but you need to trust the vault owner. You can buy bitcoin and learn to trust the exchange.

Everything carries risk.

Dana Blankenhorn is a financial and technology journalist. He is the author of a mystery novella involving Bitcoin, The Reluctant Detective Saves the World, available  at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he did not hold a position in any of the aforementioned securities. To follow the value of cryptocurrencies bookmark https://coinmarketcap.com/

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