In the Dutch city of Venray, Didi Taihuttu decided to play his first major bitcoin gambling game. In early 2017, the father of three searched every corner of his five-bedroom home and gathered the family’s supplies of gold jewelry and trinkets. Taihuttu sensed that it was time to exchange her gold supply for Bitcoin.
Three years later, that bet has paid off for Taihuttu. Bitcoin broke above $ 20,000 for the first time on Wednesday. His investment is almost three times what it is today if he had kept his gold nest egg.
“Central banks and governments are now slowly beginning to understand that Bitcoin is the gold of the 21st century,” said Taihuttu.
In the midst of the economic and geopolitical turmoil, more and more investors are looking for Bitcoin as a safe haven game.
“Especially in the last few weeks it has been clear that Bitcoin has stolen the thunder of gold,” said Mati Greenspan, portfolio manager and founder of Quantum Economics.
JP Morgan strategists say the price of gold will suffer if institutional investors keep buying bitcoin.
While cryptocurrency has indeed matured into an integral part of the financial industry, some Wall Street investors warn that the volatile cryptocurrency will never replace gold as a store of value as it has no value to store.
Is Bitcoin Safer Than Gold?
When the coronavirus pandemic stalled economies around the world, investors did what they usually did under economic uncertainty: they fled to safe havens. Just this year, gold and cash weren’t the only safe haven games.
Bitcoin is up around 190% since the start of the year, outperforming a mix of major assets, including gold. And unlike its rally in 2017, analysts don’t think we’re headed for a bursting price bubble anytime soon.
Mike Novogratz, CEO of investment firm Galaxy Digital, believes this comeback rally is just beginning. He sees Bitcoin rising to $ 60,000 by next year.
Tom Fitzpatrick, global head of CitiFXTechnicals, said the charts signaled that Bitcoin could reach $ 318,000 by December 2021, in a report destined for Citibank institutional clients and received by CNBC.
Meanwhile, the price of gold has fallen since its all-time high in August 2020, not least because of optimism about progress on the Covid vaccine front.
“Let’s face it, who needs a safe haven when the pandemic is over?” Scott Nations of Nations Indexes said in an interview with CNBC’s “Fast Money Halftime Report”. “And if you still want a safe haven, don’t look to gold. You look to bitcoin.”
Part of the difference in the 2020 Bitcoin rally from 2017 is that institutional investors are introducing Bitcoin, giving it a newfound legitimacy, and helping to eliminate the reputational risk of investing in the cryptocurrency.
Old-school billionaire hedge fund managers Stanley Druckermiller and Paul Tudor Jones now own Bitcoin, and big fintech players like Square and PayPal are also adding crypto products.
“Bitcoin is now a regulated financial asset that is not correlated to a risk-adjusted rate of return. Therefore, a record percentage of institutional flow is achieved through our brokerage and exchange platforms,” said Dave Chapman, Executive Director of BC Group.
“For all of these and other reasons, Bitcoin is seen as a true safe haven; as digital gold,” Chapman continued in an interview with CNBC’s Capital Connection.
But remember, Bitcoin has a long history of wild volatility. In the end, while price movements in 2020 appear to be more stable than in previous rallies, we just have to wait and see how Bitcoin performs over time.
“It would be difficult to label an emerging asset like Bitcoin as a safe haven because it has not yet stood the test of time,” Greenspan said. “It could be more accurate to say that it eats at his [gold’s] Market share as a hedge against inflation. “
Bitcoin supply bottleneck
After making the leap from gold to bitcoin, Taihuttu decided to get involved with the cryptocurrency. The Dutch family of five liquidated their fortunes, from their retirement accounts and cars to their clothes and toys. They are betting everything on the volatile cryptocurrency when it was $ 900 per coin in 2017. Bitcoin has grown more than 2,200% since then.
Analysts say the bitcoin rally this year has a lot to do with the limited supply of bitcoin worldwide. Only 21 million bitcoins are ever produced.
While we’re not likely to run out of gold anytime soon, the total number of Bitcoin mined is around 18.5 billion, which is nearing the maximum threshold.
The surge in interest from established financial players has not only reformed Bitcoin’s image, but has also created a supply shortage.
Bitcoin is now seen as a true safe haven. a digital gold.
BC Group Managing Director
“The main reason for the 2017 and 2020 rallies is the same,” said Greenspan. “It’s a question of digital scarcity. There is a strictly limited supply of Bitcoin on the market. So if everyone buys and nobody sells, it can put huge upward pressure on the price. What is different this time around are the players involved.” “
The 2017 rally was fueled by speculation in retail, and in 2020, billionaires and corporations are buying bitcoin en masse.
“If PayPal starts selling bitcoin to its 350 million users, they’ll have to buy the bitcoin somewhere, too,” Taihuttu said. “There will be a major supply crisis because not enough new bitcoins are being mined every day to meet the needs of large companies.”
The limits of gold
Bitcoin behaves very much like gold. Its value is very volatile, there is a market in which it is bought and sold, and similar to other commodities, the derivatives market allows you to speculate on the future price of Bitcoin.
Mainstream adoption has been hugely important to Bitcoin as cryptocurrencies like Bitcoin are neither asset backed nor have the full trust and support of the government. They are valuable because people believe they are valuable. So there is a long way to go when Bitcoin is bought by some of the biggest names on Wall Street.
Bitcoin’s digital infrastructure also offers certain advantages to gold.
“Physical gold must be stored, is not readily transnationally portable, has paper equivalents on exchanges that may or may not fully reflect the actual movement of gold, and could possibly be referred to as” yesterday’s news “for financial security purposes”, he told Fitzpatrick.
“Bitcoin is the new gold,” continued Fitzpatrick. “It moves easily across borders and property is opaque.”
Taihuttu agrees. “We have a limited supply of Bitcoin and the demand is growing enormously. More and more people are realizing that Bitcoin is the perfect gold of the 21st century.”
On a Skype call with Taihuttu, I noticed he was wearing a gold watch on the same arm that had the Bitcoin logo tattooed on it. When I asked if he had seconds because of gold, he said, “The only gold I wear now is fake.”