- Inflation is a growing problem, especially after the latest and largest annual increase.
- Bitcoin is still considered a “bubble-class” by many experts.
- BTC is physically portable, fast, globally distributed, and accessible.
- However, BTC price volatility weakens its store of value (SOV) attributes.
The ideological differences between Communism and Capitalism are many, however, the two quotes bellow from historical examples of each economic model seem to agree on at least one point – inflation devalues money.
“The way to crush the bourgeoisie is to grind them between the millstones of taxation and inflation.” ~ Vladimir Lenin, former premier, Soviet Union
“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value.” ~ Alan Greenspan, former chairman, US Federal Reserve
Inflation is a growing problem, especially given the recent surprise announcement from the U.S. Department of Labor that the consumer price index jumped 4.2 percent during the past 12 months – marking the largest annual increase since September 2008.
For millennia, gold has been viewed as the self-defining “gold standard” as an inflationary shield compared to various asset classes. That remains true today with more than $10 trillion invested in gold globally.
Key Differences
In comparison, at less than $1 trillion in current value, Bitcoin is still dismissed as a “bubble-class” asset by 74 percent of financial experts recently surveyed by Bank of America (NYSE:BAC).
However, a lot has changed since Bitcoin was created more than 10 years ago, and it could be the best investment alternative to knock the reigning inflationary hedge from its golden throne, to the benefit of individual investors alike.
Key Bitcoin differentiators include:
1. Physical Portability – billions in BTC can be carried in a secure crypto wallet that fits in a coat pocket, while one billion of gold bars is estimated to weigh about 24 tons. This is relevant because, during the hyperinflationary period that plagued the Weimar Republic after World War I, it took wheelbarrows full of Germany marks to buy a loaf of bread. Paying with gold would be just as impractical.
2. Transfer Speed – any amount of BTC can instantly be transferred from person-to-person, but not so with gold. This unique attribute results in lower transaction fees, elimination of settlement delays and the removal of third-party intermediaries. During inflationary cycles, getting resources faster and at lower cost is critically important for struggling families or businesses.
3. Global Distribution – any amount of BTC can digitally be moved to anywhere in the world with Internet access. Conversely, the maximum amount of gold that can be moved across the U.S. border is $10,000 and larger amounts require U.S. Customs declaration and filing a FINCEN 105 form. This attribute makes Bitcoin an ideal deflationary lifeline for individuals struggling in hyperinflationary countries such as Venezuela, Zimbabwe and Sudan.
4. Accessibility – all you need to buy BTC is a payment method, coin exchange and internet connection. This allows the “unbanked” masses struggling with inflation or corrupt monetary systems the opportunity to sidestep fiat currency obstacles within their home countries thanks to the promise of financial democratization Bitcoin offers. By comparison, securing any amount of physical gold requires a much more complicated process due to its general lack of use, limited availability and secure storage requirements.
5. Store of Value (SOV) – BTC has many of the SOV properties of gold such as scarcity, fungibility, proven appreciation, widespread acceptance…etc. While Bitcoin can’t be turned into jewelry like gold, BTC has other unique features that distinguish it from gold. For instance, Bitcoin can be split into subunits much easier than any type of physical gold. Bitcoin can also be staked, instantly transforming it into an interest-bearing asset that can also be collateralized – a feat that’s much more difficult to do with gold. Bitcoin is much easier to convert to other assets compared to physical gold. Lastly, despite the recent Twitter rantings of Tesla (NASDAQ:TSLA) founder Elon Musk, Bitcoin production uses about half the energy resources annually as gold production.
While Bitcoin is down more than 50 percent from it’s all-time highs earlier this year, and investor sentiment toward it is negative, its fundamentals have not changed. In fact, President Biden’s newly announced $6 trillion federal budget only solidifies the case supporting Bitcoin’s deflationary properties. Coupled with the fact that the U.S. Treasury Department has been working overtime printing dollars at an unprecedented rate – nearly $5 trillion in 2021 alone, pushing the global total to nearly $20 trillion in circulation – the specter of inflation is not going away and Bitcoin may be the best protection available.
On the Flipside
- Despite the fact that Bitcoin has generated triple digit returns annually for every year it’s existed, its price volatility does weaken its store of value attributes.
- Critics of Bitcoin continue to rail against its high levels of energy consumptions, despite the recent formation of the Bitcoin Mining Council in the US, spearheaded by Elon Musk and Michael Saylor to adopt sustainable, eco-friendly practices.
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