Bitcoin vs Gold Investment Bulletin #1
This Bulletin is intended to assist those considering “Safe Havens” for cash that they may wish to invest for an uncertain future, given the bizarre economic events we have seen occurring since the onset of COVID-19.
Two contenders are considered here; Gold, and Bitcoin.
The Bulletin may also be useful to long term investors in one or the other, considering whether or not to switch.
Seasoned investors may wish to know also about other commodities such as oil, grain, etc, but those will not be considered here, other than as passing references where those might have affected the data here.
Intuitively, and from a glance at historical data (Weimar, Zimbabwe, Venezuela, etc), the values of all fiat currencies which are being used to stimulate markets by massive injections of literally Trillions of Dollars-worth of newly printed money, every month, are likely to drop at some point, with the result that more and more cash will be needed to buy the things we need to live.
In other words, the unluckier amongst us could find ourselves struggling to find enough money to live.
We could end up in poverty.
But, how will we know when that starts to happen?
If everything, including alternative currencies, are valued in terms of fiat, then we cannot objectively see changes in the value of fiat itself, unless we might already be familiar with interpreting commodity prices.
But that is a very specialist activity, due to the amount of “Gambling” we see going on with big money speculators in those markets.
How does one interpret the phenomenon of negative oil prices, for the first time in history for example, other than “WTF?”.
So, as time goes on, and assuming the fiat currency values will drop sharply at some point, we could do with getting back to basics, valuing things again in terms of gold.
That is the object right here.
In the data plot of the header graphic, appearing also below, we see two traces.
These show the historical price data of Bitcoin.
The line in blue shows the Bitcoin price in Dollars ($), as seen in a typical cryptocurrency marketplace reference.
The line in brown shows the Bitcoin price in Ounces Gold (Oz), which the author has added, having not seen this elsewhere to date.
The Gold price data for Bitcoin was computed by dividing the historical daily Gold price, by the historical daily Bitcoin price, for each daily date point that the gold price was recorded.
In general, the Gold price data is recorded five days per week, but practical means have been used to interpolate and plot the data here with reasonable confidence, to continue the trend over each weekend, for which continuously sampled gold price data is not available.
Over the longer term, the two traces appear closely correlated, showing variations in the market value of Bitcoin, with a sharp peak at the time of the Bitcoin price bubble, which burst around the beginning of 2018
Some important facts not apparent in the traces here, but which can easily be checked at the sources are:
- The gold price in the original data, over the period of interest (April 2013 to Date), shows a dollar price which was roughly constant at a value of around $1250 per ounce, until around 2018, when it began to increase steadily, to its current value of around $1750 per ounce. So in summary, we’ve seen an increase in gold price of around 40%, mostly occurring in the last two years.
- The Bitcoin price, over the period of interest, has gone from around $100 per Bitcoin, to its current price of around $8000 per Bitcoin, which is an increase of around 8000%
The above factors alone should be enough to convince anyone which was the better investment, in terms of profit made.
However, in the likeliehood of coming economic hardship, we are more interested in which is the safer investment.
To get an indication of that, we need to look closely at the Bitcoin Dollar and Gold prices compared with one another, to see what might be happening between them.
Looking where we can see separations in the trends:
- From around the beginning of 2018, when the Bitcoin bubble burst, until the second half of 2019, we see that the Bitcoin dollar price changes lagged those of Bitcoin prices expressed in Gold. The brown line stays mostly higher than the blue. The Bitcoin price in gold was remaining at a consistently higher level than the Bitcoin price in dollars. So gold appears to have kept its value better in that period. Thus gold was a better store of value in that period, than bitcoin.
- From the second half of 2019 onwards, we see the traces swap places. The blue line trends upwards relative to the brown. Increasingly more dollars are needed, to buy Bitcoin, than the increase seen in the amount of Gold required to buy Bitcoin. Thus Bitcoin has been a better store of value since the second half of 2019. We can see also that this appears to be steadily diverging, thus Bitcoin appears to be an increasingly better store of value than Gold, as time goes on in 2020.
- The lines throughout the entire period show a consistent trend in the dollar price, relative to both gold and Bitcoin. The blue line is consistently moving upwards throughout. This is evidence that the dollar is consistently losing value, as expected. The dollar values of Bitcoin are rising at a greater rate than the gold rate of bitcoin, throughout.
- The divergence we see becomes more profound towards the current date. We see a possible exponential effect beginning around there. Logically, continuance of that exponential will indicate a runaway dollar price of both Bitcoin and Gold, which could quickly result in nonsensical dollar prices for either. Hence the reason we should begin monitoring these relative to one another, as has been done here, to enable identification and removal of unstable, rapidly devaluing fiat currencies from meaningful valuations.
A Closer look at the recent Bitcoin Gold Price
The graph below shows only the Bitcoin Gold price, from the beginning of 2020, to the current date.
In this, we can see that the Gold price of Bitcoin has risen slightly, overall.
We see the data takes the shape of an initial hump, reaching 6.5 oz per Bitcoin, before dropping into the deep cut, which hit a low point of 3 oz in April, followed by a more constant upward rise, to the current value around 5.5 oz.
When we look closer at the date of the sharp drop, we see that it occurred around the same date as we saw oil dollar prices go negative.
From that date, we see that the Gold price of Bitcoin has steadily risen, from the low of 3 oz, to its current value of 5.5 oz.
In other words, the Gold price of Bitcoin has almost doubled since the date of oil prices going negative, and it appears to be continuing, assuming the current negative slope will turn again positive within a week or two, in line with the general trend we have seen since late 2019.
Translating the Analysis to Every Day Effects
Where we see the Gold price of Bitcoin increasing, we are seeing the value of Bitcoin increasing, relative to Gold.
In effect, Bitcoin appears to be holding its value better than gold.
That characteristic appears to be increasing, especially since late 2019.
This is no small change.
Those lucky enough to own any Bitcoin, can now buy almost twice as much gold with it, than they could at the time of the occurrence of the negative oil prices; 5.5 oz, instead of 3 oz, as it was then.
Almost 100% rise, in gold, not dollars, in around two months.
In the face of failing economies, the gold price of anything is far more important than the dollar price.
This is whilst the dollar price of Gold itself has grown only 40% in the previous seven years.
In the weeks to come, I would expect to see the Bitcoin price in Gold stabilising in an upward trend, due to the effects of the dollar and other fiat currencies becoming progressively less effective, as a weapon previously used by speculators, to upset that trend.
If you happen to be sitting on some Bitcoin already, perhaps it is time to pop a bottle of Champagne.
But don’t forget to always reward the creators and messengers of truly good news.
That way we maximise the value of ourselves, our community, our world, and the good news will keep on coming.
For those who don’t have any Bitcoin yet, even a small amount as insurance, maybe it is time to try to get some. If we have no money to put in, maybe we can find a way to have some donated instead, in return for some time, like I hope to do here.
If you know anyone who needs some Bitcoin, and you have lots, then give a little out.
Investors may not realise it yet, but the value of Bitcoin has nothing to do with how many dollars are invested in it.
Ask yourself, what will you get in return for it, when all fiat currencies have crashed?
What matters is how much confidence we have in it.
That is what is reflected, by what we wish to pay for it, be that in gold, dollars, or time.
That is what is meant, by the “Value” talked of in Metcalfe’s Law, which informs us that the value of Bitcoin is simply the number of users in the network, squared, multiplied by the utility factor, which in Bitcoin is how well it works, and how easy it is to use.
Further, from the Gini co-efficient, and using the same concept of value, we see that the overall value of the currency is maximised if we see less inequality, and better distribution of wealth.
So for linear outlays, if you have lots, and can bring yourself to donating to new users, we will see square law increases in value. In other words, what you give out will be more than rewarded by increases in the value of Bitcoin.
By far, the best is yet to come.
Look out for the next Bulletin, I hope to do weekly, as long as things are happening rapidly.
Remember, all of the analysis, except the maths, here is just my opinion, based on some solid data, and knowledge from extended studies on many related subjects and articles over the years.
The Gini Co-efficient and Metcalfe’s Law have many well documented mathematical proofs.
Nothing is guaranteed, except the maths.
My Bitcoin donations receive address is:
When the ship goes down, better be ready, to step onto Land.
How we should be looking at Bitcoin and other Cryptocurrencies Relative to Fiat.
Update 23/06/2020: Image 1_1 (Gold price alone, 2020) updated to show data point of interest