Bitcoin, Gold and Emerging Monetary Systems

In our world today, the harm inflicted by dishonest fiat currencies which can be freely created is no longer hidden but on full display everywhere. Stagnant wages spanning more than a decade contrast sharply with ever rising prices of financial assets, art and real estate. As a consequence, tension within communities is palpable around the world. A great escape from the prevailing fiat currency system is underway.

Bitcoin is the prime cryptocurrency offering a vehicle for such an escape. It shows that the distrust of fiat currencies issued by governments is now gaining momentum globally. While Bitcoin has many advantages, the primary ones are that it:

1. exists outside of the existing financial system and thus could survive another major financial shock predicted by many experts;

2. cannot be created at will;

3. enables direct peer-to-peer transactions; and

4. is accepted by a growing network of participants, including significant entities in the financial system today.

Gold has been a traditional store of value and is still a reserve asset within the central banking network. Unfortunately, the price discovery of gold has been distorted by a much larger paper gold and its related derivatives market; gold’s ability to store value is therefore disfigured and often derided by those who have a vested interest in preserving the current fiat currency regime. Unlike Bitcoin, gold cannot be carried across borders, is difficult to store and is often subjected to tax when used in transactions, not to mention the inconvenience of using gold itself.

Due to the relative rise of developing versus developed countries, the US dollar dominated international financial infrastructure is progressively under challenge. Add to this growing geopolitical tensions around the world, the advantage of physical gold as a store of value could very well return with vehemence. Over the past decade or so, several non-western countries have been building up their physical gold reserves and exchanges where physical gold futures are traded are being established. An inflexion point when fiat currencies give way to some form of honest money is not far in the future. The question is what people in general would accept as honest money.

For the bulk of the world’s population, it is far easier to understand gold than Bitcoin – a quick look at the numerous proverbs and sayings around the world involving the word “gold” should be sufficient evidence to prove the point. On the other hand, it takes significant technical understanding or blind conviction to embrace wholeheartedly Bitcoin which rose from pennies per coin to multiple times the price of gold per ounce in less than 10 years. This phenomenal rise is being keenly observed by the ruling authorities.

Vested interests will always defend their territory with tooth and nail.

Apart from outages in the electrical system, criminal hacks or the takedown of the Internet, the greatest risk for Bitcoin is government action. Central banks will do their best to maintain their monopoly on fiat currencies, for this reason, restrictive regulation and legal hurdles are likely to be hurled at crypto currencies from here on. When this happens, gold will be remembered.

The adoption base of Bitcoin should always be much less than that of gold and relative values between the two is an important marker as events unfold in the ongoing global quest for honest money. It is therefore interesting to note that APMEX, the leading Precious Metals dealer in the United States, now accepts Bitcoin as payment in precious metal transactions . For those who are less religious in their belief in the “store of value” of Bitcoin vis-a-vis physical gold, the conversion route from one to the other through APMEX is a good hedge.

Of greater interest is the emergence of Glintpay. Glintpay combines the benefits of being within the prevailing financial system yet offering an option to branch off into honest money. With a Glintpay account, customers can convert easily between fiat currencies and physical gold in storage and use different options for transactions including digital representations of stored physical gold. This approach makes stored physical gold divisible, transportable across borders and easy to use in economic activities. There are still drawbacks compared to Bitcoin but the bulk of gold’s disadvantage has been removed. It is rather clear that clones of Glintpay would surface around the world in the months to come.

We are still very early in the unfolding drama of the quest for honest money. Unfortunately, with pensions and jobs under threat and the potential for a major earthquake in our financial system being predicted by more and more experts, it behoves us to follow keenly how new monetary systems may evolve. It seems that Bitcoin and physical gold would play an important role in the coming monetary reformation.