Is Crypto a Sinking Ship? Money Experts Weigh In
The exciting and volatile rise of Bitcoin was the investment story of the previous decade. While cryptocurrency has made clear that it’s no passing fad, no one knows for sure whether it will ever truly compete with traditional currency — but that might not matter. Many experts believe that cryptocurrency’s real value lies in its potential as an asset more than in its acceptance as a medium of exchange.
With So Many Unknowns, the Bulls Can Make a Strong Argument
If you’re bullish on Bitcoin, you’re in good company with many credible experts who think that early crypto adopters are on the ground floor of a real revolution.
“In my professional opinion, cryptocurrency has nowhere to go but up,” said Thomas Bayles, managing partner at Urban Growth Properties and the digital asset fund Iron Vault. “The internet population right now is 4.6 billion users and there are 2.2 billion credit card users. Of that population, only 77 million have a crypto wallet, which means we will see exponential growth and demand as more people begin to understand cryptocurrency and adopt it around the world.”
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But So Can the Bears
The ever-growing number of mainstream businesses that accept digital currency is undeniable, but a currency’s success isn’t based solely on whether or not you can use it to pay rent or buy a snow shovel at Home Depot. What Bitcoin can’t do is wield the godlike power of the central banks that control the world’s fiat currencies.
“By regulating its supply through monetary policy maneuvers, central banks can inject or suck liquidity from the economy,” said Kunal Sawhney, CEO of Kalkine Group, an independent equities research firm. “During inflation, these institutions hike rates of borrowing and stop selling bonds — all denominated in USD. And with the GDP sliding, they cut rates and sell bonds. Simple and period, none of this can be done with blockchain-based digital currencies.”
The Store-of-Value Perspective: Crypto as the Gold Killer
At one point people used gold to buy and sell things. Then they used official currencies that were backed by gold. Today, gold plays no role at all in the stuff we think of as money, but it’s still an important commodity and the oldest and best store-of-value asset.
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Similarly, it might not matter if Bitcoin eventually replaces the dollar as a purchasing medium the way dollars replaced gold. What’s much more likely — at least in the near term — is that Bitcoin could replace gold as the world’s preferred store of value. Like gold and unlike dollars, after all, the supply of Bitcoin is finite and predetermined.
“The pre-programmed scarcity of Bitcoin ensures that the coin can serve as a feasible — if not overtly volatile — store of wealth to rival gold,” said Maxim Manturov, head of investment research at Freedom Finance Europe, a subdivision of a Nasdaq-traded Freedom Holding Corp.
Andrew Lokenauth, an investing and banking professional who held senior positions at Goldman Sachs, AIG and other major institutions, agrees.
“Bitcoin is deflationary in nature,” Lokenauth said. “There are only 21 million coins in existence. Because of its deflationary nature, Bitcoin is evolving as a store of value like gold. It is already regarded by many as ‘digital gold.’ If Bitcoin took the market cap of gold, it would mean a BTC price of $628,607.”
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If Bitcoin Conquers Gold, It Can Conquer the Dollar
Lokenauth said that Bitcoin is already 10.13% of the way to topping gold’s market cap. If that march continues, the cryptocurrency could become both the world’s new store of value and its new currency.
“It is hypothesized that Bitcoin will consume gold’s $10 trillion market cap within the decade,” said Keegan Francis, crypto editor and expert with Finder. “After such time, Bitcoin will have reached new levels of stability and proliferation as money. This level of distribution will put Bitcoin on a path to replace the U.S. dollar as the global reserve currency, potentially giving Bitcoin a market cap of tens of trillions of dollars.”
Some, however, are not convinced that Bitcoin is even in the same ballpark as the most famous and coveted metal in the history of time.
“Despite being increasingly recognized as an asset class, Bitcoin has nothing to offer like gold as a store of value,” Sawhney said. “Yes, people have speculated on the price of the yellow metal for ages, but don’t forget that gold is a tangible commodity and there is no complex consensus mechanism or computing codes that go behind its creation. The supply of gold is limited to its worldwide reserves. But can anyone guarantee that Bitcoin’s supply won’t increase in the future from the threshold claimed now?”
Nature-Made Hunks of Metal Have Endured the Ages for a Reason
Shidan Gouran is the founder of Gulf Pearl, a Canadian merchant bank — and he was also one of the earliest blockchain investors.
As such, he admits that he is “highly bullish, and [has] been for the last decade.” But he’s also aware of the limitations that come with complexity — and cryptocurrency is highly complex. In times of turmoil, people like to feel the reassuring weight of a gold bar.
“Cryptocurrencies are not physical goods, they are social contracts,” Gouran said. “They are also highly labor- and energy-intensive processes, and if the process stops they cease to exist. It is very reasonable, for example, to consider a bullion of gold eternal. It can plausibly outlast humanity without requiring effort and energy to maintain it. A cryptocurrency network, on the other hand, like any other complicated process, has a much higher chance of terminating and many ways of doing so. Ultimately, you need to continually exert effort to keep a cryptocurrency network alive. Cryptocurrency networks can be forked, copied, improved on, or better marketed. This is why they are all very risky investments. There is no real moat around them.”
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