With Bitcoin and the larger cryptocurrency community pushing the boundaries against the traditional financial realm, one of the main assets to feel the pinch is the prime commodity Gold. Often touted as the digital equivalent of gold, Bitcoin has seen a slew of real-world adoption and in its race against gold, has proven to be a valuable investment vehicle for retail investors and hedge funds alike.
It’s no secret that Bitcoin is often seen as the digital equivalent of gold, not because of its aura as a shimmering gold coin, but rather the similarities between the assets. Leaving aside the many uses that gold embodies by virtue of being a metal, from being a conductor for electricity to finding its way as a tooth in 70s mafia villains, gold has always been seen from the guise of an investment, and a safe one by most.
The intangible asset that is Bitcoin, which recently broken the $100 billion market capitalization mark, is viewed in similar terms to gold, owing to its original value as a method of payment being chided for its more lucrative drive to be a volatile investment vehicle, at least, that’s how traditional investors look at the top cryptocurrency.
Bitwise Asset Management, in their report to the SEC, stated about Bitcoin:
“Bitcoin is the first digital commodity in the history of the world.”
The report further specified three points which point to a sea of differences between the king coin and other commodities in the market. Firstly, Bitcoin is fungible, there are no varieties of the coin differing in purity, as one would see with oil or gold. Secondly, being digitally rendered, Bitcoin is transportable and can be sent anywhere, at any time, between any parties. Lastly, Bitcoin can be traded directly via an exchange and does not require an intermediary, hence it allows for “open price discovery”.
On the basis of this initial literature between the two financial assets, the gold versus Bitcoin tussle took a wild turn this week. Grayscale Investment Group, a crypto-centric asset management firm launched their #DropGold campaign with a scathing TV commercial calling out gold, claiming that it is an asset of the past and stating that it has no “utility”.
The #DropGold campaign has since picked up a head of steam, especially coupled with the two feuding assets’ performance in the past few months. Gold is down by around 6 percent since February, while Bitcoin has grown by over 40 percent since March. Furthermore, analysts have also pointed out that the two assets are inversely correlated, with the 90-day correlation coefficient between the two is the lowest since March.
A day after the Grayscale campaign took social media by storm, the World Gold Council hit back via a report from Adam Perlaky, the Manager of Investment Research at WGC. Perlaky, from the outset, stated that cryptocurrencies were “not a safe haven” and in no way, a “substitute for gold”. He highlighted the volatility, lack of regulation, speculative demand, a finite supply of Bitcoin, although, Perlaky contends,
“However, there is nothing to prevent an enhanced cryptocurrency from being launched, devaluing those already in existence.”
Since the campaign aired, many proponents on both sides of the aisle joined in with their opposing opinions. One main gold proponent that hit back at the #DropGold campaign was Peter Schiff, the founder and chairman at SchiffGold, a precious metal dealing firm based in Manhattan.
Schiff stated that gold has a slew of utilities, which Bitcoin proponents plainly “deny”. He contends that Bitcoin does not have any utility, while the utility in the case of the yellow metal is “obvious”. His tweet stated:
“The ultimate irony in the #DropGold campaign, is that you can’t mine Bitcoin without using #gold. This is just one of the many utilities of gold that Bitcoin promoters deny exist. But while they overlook gold’s obvious utility, they ascribe utility to Bitcoin where none exists!”
He further added that cryptocurrency buyers were “young”, “inexperienced”, and “foolish”. Bitcoin, in Schiff’s opinion, has no value, and hence, it’s ‘store of value’ nature serves no purpose. Even though Bitcoin was created to be an independent, uncontrollable store of wealth, free from government tyranny, Schiff labels this a “function of coincidence, which could be lost at any time”.
Several cryptocurrency proponents, including Shapeshift’s Erik Voorhees and Bitrefill’s John Carvalho, replied to Schiff’s criticism of Bitcoin’s utility. Carvalho claimed he was confident that “Bitcoin will eat away gold’s value over time”. He concluded referencing the initiator for this recent episode of digital gold versus gold, stating,
“Thus the #dropgold campaign is entirely appropriate and illustrative of this transition.”
With Bitcoin pegged on entering its prime in the next few months and with all signs pointing to a bull-run on the horizon, the case for gold as a competitor looks shaky. That being said, Bitcoin has been the most unstable financial asset in recent times, responding violently to everything from scams to regulations, leading to multi-billion dollar movements, decreasing confidence in its capabilities to compete with the stable gold.
Hence, the case still remains, can Bitcoin and it’s principled stance as a ubiquitous, universal, censorship-resistant method of payment and store of value surmount the relatively stable commodity that is gold, or will the real thing oust its digital counterpart?
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Wall Street is on the losing side of Bitcoin’s impressive price rally
Wall Street, complete in their tailored suits, suede shoes, and leather briefcases, have once again placed their bets against Bitcoin.
Despite the fact that the collective cryptocurrency market broke the $350 billion mark, with Bitcoin alone accounting for 62 percent of the same and trading at $2,000 over its price at the beginning of the week, hedge funds were not impressed.
The Wall Street Journal citing data from the Commodity Futures Trading Commission reported that crypto-vested managers were holding 14 percent short positions more than long ones on the now, primary avenue for BTC Futures contracts, the Chicago Mercantile Exchange [CME].
A key point to remember here is that CME contracts are cash-settled and hence, no Bitcoins are actually being transferred, with the traders simply placing bets on the cash-equivalent price of Bitcoin.
Well-suited hedge fund owners however weren’t alone, with other stakeholders excluding the small scale crypto-investors holding a 3x on short positions, indicating a further pessimistic sentiment.
Smaller investors were however, long on the BTC market, with the CFTC report stating that investors holding 25 BTC or less were holding four times the long positions as their more exuberant counterparts. It should be noted that the CFTC report was prepared as the price of Bitcoin was still in the $9,000 range, prior to the five-figure surge.
BitMEX, a popular cryptocurrency exchange offering derivatives trading services, saw over $64.38 million in shorts liquidated when Bitcoin broke $10,000. The same was replicated when the price shot past $12,000.
Short positions indicate not just a sheepish position, but rather an investors’ contractual affirmation that the price of an asset will more likely fall than rise. Long positions on the other hand, indicate a pessimistic point of view. Hence, based on Wall Street’s trading activity, institutions are not buoyant about the cryptocurrency market.
In what could be a reverse-catalyst for the digital assets industry, Bitcoin decided to use this negativity as fuel to breach $11,000 earlier this week. Not done with the Wall Street bears just yet, BTC pumped yet again on June 26, with the price breaking the $12,000 ceiling with a further climb to $13,000 looking likely.
Who said Coin Street doesn’t go past the Wall Street express lane?
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