For as long as Bitcoin and other crypto currencies have been in existence, a constant drum beat from its evangelists was the belief that it was “digital gold.”
The claim of course was an effort to throw a halo around cryptocurrencies as a “safe haven” and a “store of value” during times of crisis or economic uncertainty.
Per the Coinbase blog (emphasis theirs):
“Gold, and bitcoin, are safe havens from fiat currency devaluation, which historically tends to be incited by surging government debt. Armed with a myriad of technological advantages, accelerating development, and maturing global market, Bitcoin is a store of value to rival gold in the digital age.”
Not only that, but the same article says that Bitcoin is in fact better than gold (emphasis mine):
“Bitcoin development is accelerating and has already proven a myriad of advantages over precious metal…”
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Those advantages are essentially listed as portability, scarcity, divisibility, privacy, low transfer fees and “auditability.”
Yesterday’s market rout, with the Dow Jones Industrial Average collapsing 2,352 points to have its worst trading day since “Black Monday” in 1987, should have been the day where Bitcoin could finally live up to its promise.
All it had to do was not drop as much as the broad market and perform similar to gold, Bitcoin would have a landmark day.
Instead, it got decimated, plunging 12% to close at $5,700.
In the past five days alone it has lost more than one-third of its value.
Gold, in case you are wondering, has lost a mere 6% in the last 5 days, and during yesterday’s market rout it only lost 0.74%.
One of those two “rivals” proved to be a safe haven and a store of value during these scary times.
The other proved to be nothing more than a speculative investment, providing absolutely no store of value.
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Yesterday alone, the cryptocurrency market lost $62 billion in market cap, according to CoinMarketCap.
In the past month, roughly 50% of the value of the entire cryptocurrency market has been erased.
Store of value?
Safe haven like gold?
Not even close if you ask Andrew Button at Motley Fool.
“While Bitcoin fans were caught off guard by BTC’s dramatic slide, the truth is that it wasn’t surprising at all. Put simply, apart from the scarcity, Bitcoin has nothing in common with gold. Gold is a physical asset you could trade if global financial institutions shut down; Bitcoin can’t be used without access to a computer. Gold is as old as human civilization; Bitcoin is younger than social media. Gold is used in manufacturing and jewelry; Bitcoin hasn’t seen any practical use case outside of black markets. The two assets simply have nothing in common whatsoever.”
While the siren song of “digital gold” is alluring, it’s time we stop pretending that Bitcoin has what it takes to become a real asset class. In times of uncertainty, it failed to perform as promised.