• TennHedge

Bitcoin Is 'De-Financializing' Gold

Gold to Bitcoin chart (XAUBTC) from July 2020 to Present

The current bull market for Bitcoin began in earnest on July 27th, 2020, when Bitcoin broke out of a two year downtrend. I wrote about that moment at the time, you can read my article here: https://www.tennhedge.com/post/bitcoin-awakens. Since that date (and at the time of this writing), gold has declined 8.5% while Bitcoin has risen some 400%.

Let's look at another stunning graphic regarding gold's performance against Bitcoin, courtesy of strategy.com:

Source: strategy.com

Gold has not held a monetary role of consequence for fifty years, when the United States effectively ended the Bretton Woods system. Under the Bretton Woods system, the U.S. dollar became the world reserve currency, and was redeemable for a certain amount of gold under a fixed exchange rate. When President Richard Nixon 'closed the gold window' in 1971, dollars ceased to be redeemable for gold, rendering the U.S. dollar a fiat currency with a floating exchange rate. At that moment, gold moved from a monetary role into its present role as a store of value. Thus, an argument can be made that gold is especially vulnerable to being displaced by a superior store of value such as Bitcoin, as there is no monetary demand to support the gold price. A counterargument is usually given by gold bugs that industrial demand plays a vital role in gold’s valuation, but does anyone really believe that demand from semiconductor and jewelry manufacturing can supplant the demand of global central banks for gold? The $11 trillion estimated market cap of gold today is largely a result of gold’s 'financialization' as a store of value. If a superior asset begins to eat away at this market cap, it follows that gold could become ‘de-financialized’ into a mere industrial commodity.

Don’t look now, but Bitcoin is already 'definancializing' gold. Gold has been around for thousands of years, one of the maturest asset markets in the world today, while Bitcoin has only been around for twelve years, yet Bitcoin has already reached a market cap that is ~10% of gold's (using the high end of gold's market cap range). In addition, Bitcoin has reached 80% of silver’s market cap. Honestly, Bitcoin doesn’t get enough credit for this kind of market cap growth. Just think about this for a moment: 'magic internet money' that was primarily a plaything for 'cypherpunks' a decade ago now is worth 10% of gold's market cap, and is the 14th most valuable currency by market cap in the world:

Source: fiatmarketcap.com

One of the best quotes from my favorite book on Bitcoin, “The Bitcoin Standard,” is the following:

“History shows it is not possible to insulate yourself from the consequences of others holding money that is harder than yours.”

Bitcoin is quickly becoming the unit of account for determining the proper value of things, as Bitcoin’s supply and monetary policy are immutable. Bitcoin is also already the superior asset to store your wealth in, if you are skeptical, simply start pricing everything in terms of Bitcoin and track the price performance. The cost of being ignorant to hyperbitcoinization is not quantifiable.

“It is early days now, but it is hard to overstate the eventual impact that Bitcoin will have not just on the $10 trillion gold market but the $20 trillion art and collectible market, the $100 trillion stock market, the $225 trillion real estate market and the $250 trillion bond market over the coming decades.” - Alex Gladstein


You should always consider seeking financial advice from a licensed advisor before making decisions with your money, and you should not consider anything I write as financial advice but merely my opinion. Getting your financial house in order is a prerequisite for Bitcoin saving, in my opinion.

Disclosure: nothing in this article should be considered financial advice and I am not a financial advisor. Do your own research as everything in finance carries risk.