Bitcoin is like gold – only better

“Bitcoin is the digital version of gold – only worse”: Sentences that Bitcoiners don’t like to hear. Our interview with MMT economist Maurice Höfgen sparked a lively discussion in the community about opening up the discourse to critics of the No. 1 cryptocurrency. We were rightly accused of leaving daring theses unchallenged in the room. That should change with this.

“[…] Gold, real estate, or any form of commodity money [sind] a store of value not because of its usefulness as a commodity, but despite this usefulness ”, Conner Brown writes in his essay“Bitcoin Has No Intrinsic Value – and That’s Great.“In it, the Bitcoiner explains why value storage does not necessarily have to fulfill a different function than that of pure value storage. On the contrary: According to Conner Brown, the market for gold, for example in the electrical engineering or space industries, significantly distorts the gold price. I deliberately did not include the finishing as jewelry here, as I assume that this application also falls under value storage.

Bitcoin, on the other hand, is a pure monetary asset. Neither jewelry nor semiconductors can be made from BTC – and that’s a good thing. The value of Bitcoin is measured 100 percent in its suitability as a store of value, digital gold has no other use. BTC is the purest and most undistorted store of value that mankind knows.

You can’t make jewelry out of BTC and that’s a good thing

After all, gold still has a real use, for example it can be used to make jewelry and it is considered a status symbol. Bitcoin does not have this property. The problem is, there is a lot of competition among cryptocurrencies. Bitcoin, unlike gold, could be replaced at any time. That’s why I think Bitcoin is the digital but worse version of gold,

Maurice Höfgen

says Höfgen in an interview with BTC-ECHO. But that is a pseudo-argument. Bitcoiners have recognized that stores of value do not need any intrinsic value (if this concept can even exist). Neither is BTC dependent on use cases apart from the value storage function. It is no coincidence that Bitcoin is still dominant among the cryptocurrencies (more on path dependency and Bitcoin dominance here). BTC is designed in such a way that it simply works well as money and therefore also as a store of value.

Bitcoin is better than gold because it is the scarcer asset

How well a certain good is suitable as a store of value depends above all on one aspect: its scarcity. Since Saifedean Ammous in his main work “The Bitcoin Standard“Having established the concept of the stock-to-flow rate, we also know what kind of scarcity is meant. It is not the general availability that is decisive, but the relationship between the amount in circulation (stock) and flow, i.e. the inflation rate, is decisive. Accordingly, gold is an established store of value above all because it has the highest stock-to-flow rate (S2F) of all precious metals. An S2F rate of 62 means that it will take approximately 62 years for the current gold in circulation to double from 201,296 tons.

Bitcoin currently has an S2F rate of around 52 and is therefore no longer far from that of gold. Despite all the criticism of PlanB’s model, one must recognize how precisely it was able to model the Bitcoin price trend using the S2F rate.

I prefer that humanity has a reliable store of value that does not cause social damage. These days, all sorts of naturally scarce assets such as real estate, gold, oil and, more recently, even building materials such as wood are being “abused” as a store of value. That drives up the price and leads to all kinds of market-economy upheavals: More and more precious metal mines are devastating entire regions, real estate prices now only know one direction; Vacancies and rising rents are the result.

Bitcoiners have understood that BTC is the dematerialization of all physical stores of value. People need a store of value and it is their right to decide for themselves where to store their wealth. In any case, gold has had its day.