- Bitcoin is frequently called “digital gold,” alluding to its capacity to serve as a store of value akin to physical gold.
- On the subject of whether Bitcoin is a defensive or speculative asset, there is still no agreement. For insurance against inflation, few institutions and investors put money into the first cryptocurrency.
- Bitcoin exhibits distinct behaviors in various market conditions, according to research on the association between it and various asset classes.
Common Features of Bitcoin and Gold
Satoshi Nakamoto envisioned Bitcoin as a full-featured payment method free from the drawbacks of conventional money. Inflation, or the steady loss of real value as indicated in purchasing power, is the main one.
The following characteristics of Bitcoin’s design were included to combat this:
- There can only be 21 million Bitcoin issued. In the fall of 2140, miners will receive their final coin.
- The number of new coins being produced is dropping. Around every four years, the incentives for mining Bitcoins are cut in half due to a programmed occurrence known as halving, and this is good info to know for crypto casinos players.
Gold shares similar qualities. It has a finite amount of reserves because it is a natural metal. While this resource’s production is rising, it has not kept up with demand, and fewer and fewer new deposits are being discovered.
And finally, much like with Bitcoin, humanity has consciously accepted gold as a precious commodity with worth.
Has Gold Always Been a Protective Asset?
The way they are used is a key resemblance between Bitcoin and gold. For many years, gold served as both a store of value and a currency. Coins were valued and assigned a face value based on their composition.
The so-called “gold standard” was embraced by the economies of industrialized nations around the end of the nineteenth century. In this system, gold served as the standard for measuring value, and the government used its own gold reserves to guarantee the validity of fiat money. The nation that printed the money promised that a specific amount of gold could be obtained in exchange for the banknotes.
The Bretton Woods agreement, which was reached by Western nations in 1944, established a fixed exchange rate for the dollar that was based on the price of gold. The precious gold was worth $35 per troy ounce. Although replacing the gold standard, the new monetary system was still reliant on gold’s price.
The Bretton Woods agreement was rendered meaningless in 1971 when the USA ended a fixed dollar rate vs gold. Since that time, the supply and demand on the open market have been the foundation for the formation of fiat money rates. The currency experienced persistent inflation during the same time, but at a moderate rate.
Nonetheless, it never had an annual value greater than 2% from the 1980s through 2022. Since the dollar is money, it continues to be the world’s reserve currency and well-liked security.
Although gold is no longer a form of payment, its value has not changed. The ability to keep value is the cause, as selling is discouraged by economic incentives.
Why Isn’t Bitcoin Recognized as Digital Gold?
The primary purpose of gold as an investment asset is its capacity to hold and grow in value during times of crisis. When there is a protracted economic downturn, investors sell high-risk investments like equities and buy ways to hold onto the value, particularly gold.
Gold reached its highest price in 1979 after starting to rise in 1972. The precious metal traded at nearly the same level, up and down in value, throughout the following 30 years, though.
Only in 2007 was the value at its highest (about $680 per troy ounce in 1979). Following that, there was a worldwide financial crisis, and by 2011, the metal’s price had nearly tripled and surpassed $1800. Over the following eight years, the asset’s value declined. The upswing started in the middle of 2019. The coronavirus pandemic sparked the quotes, which nearly hit the $2000 mark in August 2020.
Bitcoin was developed in response to the 2007 financial crisis, which the U.S. “repaid” with a sizable additional dollar issue, according to the documentation provided by Satoshi Nakamoto himself. The price of the cryptocurrency has climbed steadily yearly since the debut of its primary network. Bitcoin, however, is a volatile asset over shorter time frames. It resembles high-risk assets as a result.
Many academics have frequently discovered connections between the stock market and Bitcoin. According to Arcane Research, the first cryptocurrency movement in April 2022 closely resembled that of tech stocks, which are regarded as a riskier sector of the stock market.
A few months before, Goldman Sachs analysts had issued a warning that the price of Bitcoin was dependent on macroeconomic variables and that its value might decrease as a result of tighter Fed policies. That’s precisely what transpired subsequently.
According to Bank of America, the first cryptocurrency’s price has been correlated with the stock market since 2021. The bank analysts used the correlation with the important market indices S&P 500 and Nasdaq 100 as an illustration. As a result, according to the bank, Bitcoin is not a defensive asset.
Arguments in Favor of the Digital Gold Thesis
Additionally, there are arguments in support of using Bitcoin as a store of value.
First, well-known investors have discussed Bitcoin’s security features. American investor Ray Dalio backed the idea of “digital gold” in 2021, yet he later said that gold outperforms the first cryptocurrency.
Former BitMEX CEO Arthur Hayes predicted in April 2022 that due to Fed policies and the dollar’s decline, Bitcoin would eventually turn into a defensive asset.
Second, an analysis discovered that the first cryptocurrency was largely associated with the precious metal throughout the 2020 crisis.
Third, depending on the state of the market, Bitcoin’s association with various asset classes can alter. Larry Chermack, a researcher at The Block, stated the opinion that the value of the first cryptocurrency is beginning to behave similarly to risky assets amid market drops in 2020.
The practical application of Bitcoin as digital gold is another pro-argument. Despite its considerable volatility, the first cryptocurrency is already held in savings by a number of significant businesses. Tesla, Core Scientific, and Square are listed among them on the Bitcoin Treasuries website.
MicroStrategy CEO Michael Saylor, whose company holds about 130,000 BTC, is one of the leading proponents of using Bitcoin as a hedge asset.
Nevertheless, government reserves already make use of Bitcoin. The El Salvadoran government has been purchasing Bitcoin for its treasury since 2021.
Because institutional investors accept it as such, according to JPMorgan, Bitcoin has the potential to become digital gold. But, the first cryptocurrency’s reliance on inflation prevents it from realizing this potential.
Conclusions – Bitcoin & Crypto Casinos
Since the creation of Bitcoin in 2009, the world of cryptocurrency casinos has seen significant upheaval. Speedy transactions, minimal transaction fees, and privacy are just a few benefits that Bitcoin, the first decentralized money in history, offers for online gaming.
Bitcoin is already widely accepted as a form of payment at online casinos, making it simple to deposit and withdraw funds fast and effectively. This has given gamers new opportunities , especially those who live in locations where traditional payment methods could be restricted.
Also, users benefit from increased security and openness because of Bitcoin’s decentralized architecture. Traditional online casinos may not be able to match the trustworthiness and transparency provided by the blockchain ledger since it makes sure that every transaction is recorded and unchangeable.
Bitcoin’s appeal has been increased by its widespread adoption and use in the larger cryptocurrency market in addition to its technological advantages. Bitcoin is a well-liked option for both players and online casinos due to its rising demand and availability.
As a result, Bitcoin has significantly impacted the market for crypto casinos by giving players from around the globe a secure, rapid, and simple payment method. As cryptocurrencies like Bitcoin and others gain popularity, we may expect even more innovative uses for them in the world of online gaming.