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Bitcoinâs creator patterned his digital commodity money after historyâs most famous analog store of value for currencies, gold. Debate rages as to whether bitcoin will overtake goldâs place.Â
Also read:Â Goldman Sachs CEO Lloyd Blankfein Latest Exec to Flirt with Bitcoin
Gold Remains Goldman Sachsâ Refuge
Recent volatility analysis of bitcoinâs âexchange rate means that merchants accepting Bitcoin (who do not, implicitly, want to become Bitcoin speculators themselves) should demand large volatility premia to hedgeâ against their assumed risk in accepting the worldâs most popular cryptocurrency, Goldman Sachsâ Michael Hinds, Mikhail Sprogis, and Jeffrey Currie urge.
Their report, provocatively titled Fear and Wealth, stressed how âa 3-day USD/BTC put option at historical average volatility results in a premium of around 2.3%.â Mr. Hinds, et al, find such a premium to be prohibitive, concluding their outlined barrier âclearly illustrates that Bitcoin as a unit of account and medium of exchange is nowhere near as favourable as it first appears.â Fiat to bitcoin volatility this year stands at more than six times its gold counterpart.
Metcalf applied to bitcoin transactions and market cap.
Goldmanâs Fear and Wealth examines four fundamentals: durability (bitcoin is forever subject to hacks, be they personal, network, institutional), portability (gold weight exposes it to high expense and need for security measures, while bitcoin moves relatively undetected), intrinsic value (existence of alternative cryptocurrencies mean an oversupply), and unit of account (goldâs four-millennia track record means it has conquered volatility). For these reasons âgold wins out over [bitcoin].âBitcoinâs Metcalf Future
Business Insiderâs affable Executive Editor, Sara Silverstein, mentioned to news.Bitcoin.com she âwouldnât say I use bitcoin.â Ms. Silverstein has some, but is ânot interested in using bitcoin for transactions right now.â
In her new weekly video program, The Bit, she snagged Wall Street bitcoin bull Tom Lee of Fundstrat. Their conversation quickly turned to valuing bitcoin versus gold. Ms. Silverstein knew Mr. Lee âmodeled bitcoinâs price based on two different methodologies, and [I] wanted to dig into both of these and talk about the question more generally,â she told news.Bitcoin.com.
Expanding on his use of Metcalfâs Law, Mr. Lee explains to Ms. Silverstein âif you build a very simple model valuing bitcoin as the square function number of users times the average transaction value, 94% of the bitcoin moved over the past four years is explained by that equation.â
Also known as the network effect, it can help to understand âFacebook, Alibaba, and Google,â Mr. Lee cited as examples, and their respective increases in utility value. He explains âbitcoin represents a store of value because itâs an encrypted, personal encrypted database, that for seven years hasnât been hacked.â
That âis a way to store value,â Mr. Lee insists. The nine trillion USD gold market âwas [the previous] store of value. I think this next generation of young people view bitcoin as their store of value. And if it captures 5% of the gold market, itâs worth at least $25,000 per unit.â
Calling his price âconservative,â he said it âreally reflects the assumption that investors will allocate in their blended portfolio only 5% to alternative currencies. Today, that allocation is much greater,â he explained.
It might be the case investors and adopters will use both gold and bitcoin, revealing either/or debates to be more about blackening bitcoinâs reputation than substantial analysis. Legacy banks usually prefer status quo to radical innovation.
Are you hedging in preference to bitcoin over gold? Tell us your reasoning in the comments below!
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The post Gold Versus Bitcoin, Goldman Sachs Prefers Metal to Crypto appeared first on Bitcoin News.
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