Would you say gold’s value is determined mostly by its practical use? Because it seems demand is largely driven by speculation as an alternative currency.
I can restart forks of both bitcoin and Ethereum on my laptop at this moment. I can restart 10 forks each. Or 100.
I cannot do that with gold.
Yes, but Russian Federation uses only one to evade sanctions.
In China, it's nearly impossible to invest your assets without friends in the government. The government strictly controls conversion of their currency to non-Chinese currencies. As strange as this sounds, but with cryptocurrencies, you can export value from your country to something more stable.
Same goes for many south american countries.
I still wouldn't invest into Bitcoin or Ethereum but I live in the west where there is the rule of law and one can invest into a large variety of asset classes.
In addition to that, there are also 10.5 million altcoins (10000 new are created every day). But all of them together hold just 17% of crypto value. So you can, of course, create another millions of forks, but it won't make a dent in Bitcoin value.
No it isn't. My credit card has an intrinsic value of zero. It might even be negative due to the massive amounts of infrastructure necessary to run it, similarly to bitcoin. The value is in the networks surrounding it, not whatever method Visa uses to move the bits around, be it blockchain, databases, or whatever. And even then, Visa's value add is only a few points on the transaction. It's in no way a speculative asset and if Visa went away tomorrow forever, it would suck for maybe a month while we adjusted to using cash again. In the same vein, if bitcoin went away tomorrow, I wouldn't notice until reading a panicked article about it.
If the US dollar went away tomorrow, however, I'd be happy to have stocked up on ammunition and cured meats.
It's not only almost 100% speculation, it doesn't have much history track record.
Crypto bros need to understand that they aren't the first people to discover a speculation market, and just because they can dream of utility doesn't mean they test if the world wants to treat it as a reality. What they're doing is, from a financial perspective, boring and in many cases outdated.
What’s better: someone living in a house, or a house sitting idle as a store of value?
What’s better: someone storing his wealth in houses and gold ignots, or in special financial assets that don’t take away products from other people?
It’s bad to be able to transport wealth through time? Spend it or lose it? Never work hard now for later?
And bitcoin is even _worse_ than gold, on the fundamentals; gold does have at least have that bit of intrinsic value (plus a few millennia of cultural cachet). Bitcoin has _nothing_.
It really doesn't matter. The honest commodity value is the same price as the market value. 60+ percent of new gold mined every year goes towards jewelry and electronics. The base price of gold is high due to demand, not due to speculation. Gold is pretty and pretty hard to find - thus the price goes up.
That makes ETH is comparable to shares of a company, where fees are revenue, new issuance to stakers is cost, and any net profit is paid out to ETH holders in the form of stock buybacks. You can calculate a PE ratio.
Gold has its uses. It’s a pretty metal and has practical uses in engineering and medicine.
It has been a choice for jewelry for thousands of years.
Would you say gold’s value is determined mostly by its practical use? Because it seems demand is largely driven by speculation as an alternative currency.
BTC is more volatile than gold.
Using paper money has already defined you as a participant in accepting the societal construct of money.
As such, Bitcoin having no intrinsic is not novel or consequential and has no bearing on its utility.
But (b) money is given some real grounding by states; you can pay tax with it, in particular. It’s not much, and it’s not bulletproof, but by comparison to cryptocurrency, well, it’s _something_.
But really, it makes no sense as an argument that hoarding cryptocurrency is a good idea, because hoarding _money_ is, notoriously, a _bad_ idea.
Granted a commodity's value may be driven by speculation, but at the end of the day it's a material that is consumed by various industries.
Main difference between gold and bitcoin is in its history. Gold as a type of investment instrument has already earned its reputation and status. It’s not just a commodity, it’s a financial instrument that had its use in building and making of history and it’s well integrated, recognized and supported by most government and societies.
We still don’t know what Bitcoin really is and how it behaves. It could be valued 10k times up or down next year and there could be no clear reason why that happened. Bitcoin is not in hands of most powerful companies, people and governments and change of its value would not affect anything but net worth of certain individuals or organizations.
By no means, I think bitcoin is here to stay and it has a very clear future as an investment and payment instrument. But I think it’s really silly to say Bitcoin is speculative as much as other investment instruments.
As far as what should bitcoin's utility be valued at to the world at large, sure this is in a volatile state, but I don't see how that bears on it's classification as an asset.
And for what it's worth, Vanguard doesn't have a pure gold ETF.
People in CS:GO pay (tens) of thousands of dollars for skins which are just digital status symbols.
Maybe the property of gold is that it is a status symbol which has a long history and cannot be duped.
Bitcoin is different. Although it's mined, the mining difficulty constantly adjusts to keep the block time at 10 minutes. The price is set by the people in the market buying and selling it and so fluctuates all over the place.
2007: 31.59%, 2008: 3.41%, 2009: 27.63%, 2010: 27.74% [1]
Owning too much gold is terrible, but a modest allocation to gold in a portfolio of mostly stocks, which you rebalance every year or two, works out pretty well. [2]
[1] https://www.macrotrends.net/1333/historical-gold-prices-100-...
[2] https://portfoliocharts.com/2021/12/16/three-secret-ingredie...
(NB. Gold enthusiasts will sometimes try to cloud the waters by comparing gold to, say, S&P500 price only (ie pretending dividends aren’t a thing). This honestly still doesn’t leave gold looking very attractive, but it’s also dishonest. To compare like with like you want to look at S&P500 with dividends reinvested, and at that point gold just isn’t even in the running.)
But you can get the gist by observing that in 2008, the S&P500 dropped 38.49%,[1] while gold went up 3%. If you had, say, 10% of your portfolio in gold, then when you did your end-of-year rebalance you got to buy a lot of cheap stock. Gold also substantially outperformed stocks in 2007, 2009, and 2010. So I'm not convinced it's a "myth that people flee to gold in times of uncertainty." Maybe you're right that it's not as big an effect as some people believe, but it's enough to benefit your portfolio.
[1] https://www.macrotrends.net/2526/sp-500-historical-annual-re...
Very true. OTOH, if you bought gold one week, one month, six months, one year, five years, ten years or twenty years ago you would have made money.
I am not really a gold bug. It has a place, but it’s not the best asset ever. As others correctly point out, it is unproductive in itself. OTOH, if you have two uncorrelated assets, you can make money simply by rebalancing periodically between them. Not a lot of money, but not nothing.
Note too that cash itself is unproductive. Dollars ultimately derive their value from the fact that Americans have to pay their taxes in them, not because pieces of linen paper are useful for a lot.
Well, yes, but that's a rather unusual condition (the last time that would have been true would have been for a period in 2011, and before that for like a day or two in early 1980).
By contrast if you'd bought a broad index fund you'd have made a lot _more_ money (except for the one week example, due to Nvidia shitting the bed today). Like, a _lot_ more money.
> Note too that cash itself is unproductive.
Sure; approximately no-one will argue with you on that one. But cash isn't really the alternative to gold.
Even from a speculative standpoint, gold or similar commodities have the advantage of being actually support limited. Now obviously the supply of an individual cryptocurrency can be limited, such as with Bitcoin, but the supply of cryptocurrency in general is essentially unlimited with very little barrier to entry. That's not great for even speculative investment, since you're essentially betting on the continued popularity of whatever currency you invested in with relatively little history to support that trend.
Gold has the Lindy effect going for it. Humans have been trading it for thousands of years. Bitcoin has been around for 16 years.
Gold has industrial uses and if its value dropped, its uses would expand. Bitcoin has no such inherent supply-demand curve.
I seem to remember in the past, commodity investments where viewed with an eye towards diversification benefits, for example.
You know all those economical instruments? They actually serve a purpose(like making the price stable or making the supply and demand predictable. This is important because it usually takes months to years to produce these things and you don't want to destroy your producers or production capacity for a glitch) and they're not just a gambling machine with strength rules.
Oh really? With stock buybacks, splits, and options, financial trickery, and market cap not matching production?
There are lots of forces in the market that make it very much a gambling machine. For example SMCI produces very real things, I've owned hundreds of their products, but some questionable decisions resulted in a huge drop despite them being well positioned for all the AI growth. Or TSLA, which has recently doubled from a point where many felt the stock price didn't match the available market.
And the scarcity of gold is not likely to decrease in the near future, unlike with diamonds that can now be cheaply manufactured and bought on AliExpress.
In an apocalypse gold s still usable and gold has other uses. Like industrial and as jewelry