I was well aware that we were in the final phase of a mania and the crash was near. Still, in December 2017, I made the bet that bitcoin would outperform gold on a five-year horizon. A few days after the bet, the price touched $20,000 and then it collapsed. A year later it was struggling close to $3,000. I am continuing the article series after a lengthy hiatus. The topic is relevant again because bitcoin is above $16,500 again — the level where I made my bet three years ago. Even with that, I am still standing to lose badly at the time of writing, as the price of gold rose 50% since then. At that level, I would be winning only above a $25,000 bitcoin price. But I still have two years to get there.
There are more and more indications that bitcoin is marching steadfast toward becoming the digital gold. One such indication is a trend among public companies that developed in the recent months: they buy bitcoin. For the long term. And they do it because they do not trust cash. On the other hand, they see bitcoin as a good hedge against inflation, so they invest a part of their cash reserves into it. We already knew about smaller companies that keep bitcoin on their balance sheets. But this time, serious corporations with billion-dollar market caps also joined the ride. Kicking it off was the Nasdaq-listed company MicroStrategy. It spent a total of $425 million in August and September and is now the proud owner of 38,250 bitcoins. That is huge, not least because it means that one-third of its market capitalization is in the largest cryptocurrency.
A frequently asked question about the enormous rescue packages for banks is this: Why should states save mismanaged private companies with taxpayer money? Satoshi’s message drew attention to this, and, more generally, to the contradictions and risks of the global financial system. With bitcoin, he created an asset independent of all that — one where we can rescue our savings from the systemic risks of the credit money system.
Obviously, the title is absurd. Bitcoin does have something to do with chains, but it is not used for manufacturing jewelry. That is especially relevant here, because gold is. And demand for gold jewelry typically tanks right when demand for investment gold rises. If you want to hedge against economic uncertainties by investing in gold, know that people have less money for expensive chains and rings in that period — exactly because of the economic uncertainties. And that makes your hedging position less efficient. But to what extent?
After several years, the Hungarian housing market raised from its ashes in 2014. A long stagnation was broken and prices began a steep climb, just as the number of transactions also went up significantly. Rising prices and higher volumes persisted — up until recently. Five years ago, a noticeable sign of reversal was that my mailbox became flooded with flyers saying “Looking to buy an apartment.” In line with the state of the housing market, I had not received any of these before then. Most are from realtors that seek out buyers for the restless sellers. The amount of flyers thus somehow indicates the strength of the demand side.
I was well aware that we were in the final phase of a mania and the crash was near. Still, in December 2017 I made the bet that bitcoin would outperform gold on a five-year horizon. In this article series, I describe what I based my opinion on. In Part 1, I presented the background of my bet. In Part 2, I argued that there is a need for digital gold. The previous part explored why bitcoin stands the best chance to fulfill this purpose. I will now give further arguments in support of that.
I was well aware that we were in the final phase of a mania and the crash was near. Still, in December 2017 I made the bet that bitcoin would outperform gold on a five-year horizon. In this article series, I describe what I based my opinion on. In Part 1, I presented the background of my bet. In Part 2, I argued that there is a need for digital gold. This part and the next will explore why bitcoin has the best chance to fulfill this purpose.
Satoshi Nakamoto, the anonymous inventor of Bitcoin originally hoped to create a payment system with radically cheap (even free) transactions, which therefore could also be used for micropayments. We can declare that bitcoin has not been fulfilling this promise for years: at times, a single transaction can cost multiple dollars. This is certainly not how I would buy my coffee. Still, at the peak of the mania in December 2017, I made a bet that bitcoin would outperform gold on a five-year horizon. I did so despite clearly seeing that we were in the final phase of a bubble soon to pop. Moreover, it was doubtful whether bitcoin would ever be able to serve the purpose it was dedicated to by its creator. So what did I base my bet on?
In December 2017, some of us received a spot-on group mail, as we routinely do, from our colleague Viktor Zsiday. He used the results of Ron Paul’s Twitter poll to demonstrate the completion of the bitcoin mania at the time. The American politician asked people about which asset would perform best on a 10-year time horizon. Bitcoin won with a landslide. Only gold got a noteworthy amount of votes from the rest of the options.