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Expert's opinion: gold or bitcoin

Gold or bitcion

Andrei Misko, the director of "Groshi" museum

I decided to put the question this way and asked myself whether the comparison is correct. Not entirely correct - these are different assets, the cryptocurrency industry is only in its infancy while gold has thousands years of history. The assets serve for different purposes - gold is primarily used as reserves of central banks, individuals' savings in the form of jewelry and bullion and about a tenth is used for industrial purposes; cryptocurrency ownership today has mainly investment and even speculation as goals. Much has been written about the fundamental value of cryptocurrency - it has to come up as an alternative to fiat money, they do not have a centralized issuing center and they are “independent” from states and governments. Well, there is no need to speak of complete independence as national norms are being developed to regulate this sphere. Somewhere cryptocurrency is banned, in Germany it is treated as “private money”, in the US as “virtual currency”, in Japan bitcoin is legal tender. There is no global understanding of it. Many people ask "Is this an asset? What is its fundamental value?"

 

Resources of the gold 

Gold adherents define its fundamental valye clearly - gold is limited, all gold on earth is a cube with a side of 20 meters. Opponents say that there is much of it and industry needs no more than 15% of its output. But thev governments preserve gold, the main holders are the United States (about 24%), the European Union (31%), the IMF, Russia, and China. At the same time, Russia and China are aggressively increasing their reserves, EU reserves are slightly decreasing, US stocks remain stable, but the reliability of US stocks is being questioned as the last revision was in 1953 and there is no other reliable information on this subject - there is a number of conspirace theories saying that the gold in the vaults of the United States is long gone. The major part of the EU gold is located in the vaults of the US and in recent years many governments have started the process of returning physical gold to their territory. 

The interest in gold on the part of private investors has been declining in recent years. This is primarily due to the decline in prices since 2011 and the emergence of new classes of assets for investment. The use of gold as jewelry stays at traditionally high level, primarily due to the Asian markets - India, China, and the muslim countries. Thus it's too early to say that gold loses it's attractiveness. Although it has now become less interesting from the point of view of private investors, it still retains its role in government reserves and the jewelry industry. It is important that the decline in prices in recent years has led to underinvestment in the mining industry, which in the long term will lead to a drop in production levels and, as a consequence, a decrease in supply in the market. Opponents of gold say it has fallen in price and will fall even more, supporters fend off “Your apartment cost $ 100,000 in 2011, right? Is it 65 now? Gold drops practically in the same way". That is, the decline in the dollar value of gold is approximately equal to the decline in the dollar value of other traditional assets. Of course, different classes of assets are moving in a different direction - the stock market is growing, the yield on debt securities exceeds the yield on gold. But generally gold copes well with its function of “preserving value”, it is always liquid and under the worst development options the decline in the value of gold is limited to its prime cost levels, although a short-term drop below prime cost levels is not excluded by meeting the demand of existing gold reserves. But all this is subject to a significant reduction in demand for gold, which is not expected in the current geopolitical and economic realities.

The price of gold is extremely dependent on the monetary policy of the world powers and, above all, the Federal Reserve, which for many years has been trying to explain to everyone that gold is “just metal”, but for some reason the United States is the largest holder of this “just metal” that for many centuries was the most real money and measure of value. For the sake of objectivity it is worth noting the high cost of the ownership of gold and the cost of its storage and security. But I still adhere to conservative views on gold: it has "fundamental value", although I do not amuse myself with illusions in the rapid recovery of investment demand. Investmenting in gold for years, income is not obvious, but losses will never be large, gold is “stable”. But let's go back to the crypto community.

Cryptocurrency 

To the crypto community exactly, since it determines this market to a great extent. What is the fundamental cost of cryptocurrency? Is it active? It is difficult to say as there is no consensus on this. There are those who "believe". There are those who have "heard". And only a few who understand, and even fewer those who make money on it. While everything was rushing up, especially in 2017, the influx of investments in the industry was avalanche-like, there was a lot of money for those who “believed or heard”. This is short money, quick to enter and to leave. Someone earned, someone lost. Quickly and a lot. Volatility rolls over. Opponents say "bubble", supporters of the crypto community say it's a normal situation, the asset is young, the costs of youth. Well, so be it. Another important question is whether the asset will secure the function. And if so, which one. Payment facility? Unlikely. The government is against it, it undermines the existing monetary system as it exists, the existing control over the financial system is lost. Well, only if you do not lead this movement. Savings function? Also doubtful. High volatility, high risks. Hacking exchanges and theft from wallets. Risks and risks again. Measure of the value? Or a function of world money? It is occupied by the dollar and other world currencies, and they are unlikely to give up their place. Despite the fact that fiat money has a minus - dependent emission center, nevertheless, these currencies are backed with at least national economies, military might and the state machine. And fiat money is also protected by laws. Cryptocurrencies can certainly perform the function of conversion, but even here there are questions - the speed of transactions and all the same security. And a thing that for some reason jars me up. This is the cost of mining. Electricity, energy for "extraction" cryptocurrency. We produce electricity and aggravate the environment while the fundamental value of the asset is not confirmed and is subject to doubt. Although, for the sake of objectivity, it is worth noting that the production of gold is costly, including an environmental point of view. 

I don't want to say that the crypto community is doomed, especially since I consider myself to be one of those who have "heard". But if the crypto community does not prove in the coming years that it can take a step forward, “reincarnate” into something new and offer people a function, then it will remain a community of marginals led by random cryptocurrency millionaires.

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