Bitcoin’s decentralized nature has allowed it to evolve into a widely accepted and recognized digital currency, a safe haven asset and “digital gold.” Since 2016, Bitcoin has demonstrated a truly exponential growth rate based on various indicators including user base, trading volume, market cap and price.
The Advantage of Bitcoin over more Traditional Assets
Earlier this week, Ari Paul – the CIO and Managing Partner of BlockTower Capital who previously worked as the portfolio manager for University of Chicago’s endowment – emphasized the advantage of bitcoin over gold. Paul wrote:
“To confiscate your gold requires just 1 judge. To confiscate your (properly stored) crypto, the entire network must be shut down. Many people are responding by noting that someone could be tortured for their password or permanently detained. True, but a false binary. Consider that many Americans are the descendants of people who were able to feel oppressive regimes with the clothes on their back. Consider that many people eventually get out of jail, or even have their case dismissed, especially if they still have access to wealth.”
Because of its physical properties, gold can be easily confiscated by the authorities. Just late last year, Indian authorities confiscated gold from its citizens and households amidst an ongoing investigation into money laundering and a crackdown on illicit financial activities.
In an analytical blog post entitled “Clarification on India’s Gold Confiscation,” Armstrong Economics founder and CEO Martin Armstrong explained that gold and other assets can be seized by the authorities in India if citizens and households cannot prove those assets were purchased with taxed money. He wrote:
“The Indian society relies on cash for more than 90% of transactions, and nearly every aspect of daily life has been effected. This was a bold action to force the economy into a fully taxed society all for the benefit of the government, of course. The gold ownership is allowed provided you prove you bought it with taxed money.”
Immediately after the demonetization of 500 and 1,000 rupee banknotes, the Indian financial industry was forced to endure a serious financial problem revolving around the lack of fiat and limited circulation of its national currency. Almost simultaneously, Indian prime minister Narendra Modi led an anti-money laundering investigation. This led to the confiscation of gold and other precious metals based on the aforementioned taxed money policy.
As Paul noted, an investor’s ownership of gold could be disputed, seized by authorities and confiscated from rightful owners. With bitcoin, such confiscation is not possible without terminating the entire cryptographically-secured network, which is not possible given its hash power and distributed nature.
For many reasons including portability, security, liquidity and efficiency, bitcoin has overtaken gold as the premier global safe haven asset and long-term investment. An increasing number of professional, retail and institutional investors are purchasing bitcoin to hedge against global economic uncertainty and market instability.
Bitcoin’s market cap and rapidly increasing trading volume demonstrate a continuous increase in demand from investors across the world, particularly in China, South Korea, the U.S. and Japan. Even in India, which heavily relies on gold as a safe haven asset and long-term investment, the demand for bitcoin has risen to a point where the government is actively considering legalizing the digital currency.