Gold has always been considered a safe haven for capital. Many gold investors do not trust any promise made by governments in paper. They are happy to switch their paper and electronic money into gold, a metal that is hard to fake. In real crisis an ounce of gold is an ounce of gold and will reflect this value.
But there is the fear and gold is not easy to store, especially in bigger quantities. A ton of gold is worth about $60 million. If you are trying to protect yourself from a major disaster, gold is not going to do a great job for a billionaire. An asset weighing even 100 pounds is awkward if its purpose is to protect the owner from, we say, a war. Ideally a safe haven asset has little weight because when disaster occurs, wealth is only what you can carry.
But gold is not only bought as a safe haven. Many individuals fearing bad times ahead buy it because they think it is going to rise in value. At the end of the day, gold is an investment and most people who buy it are hoping that it will appreciate. Gold, however, has failed to go up significantly whatever the global economy does. It has not lived up to the expectations. The best it seems to manage is to jump a few hundred bucks if something bad is happening in our world.
Now, Bitcoin and other cryptocurrencies have been invented. Like gold, cryptos are not only a speculative investment but has been invented also as a safe haven investment.
But let’s look at our safe haven investments from another side: Issuance!
Every year, about 3,300 tons (worth approx. $200 billion) of gold are newly produced. On top of this, recycling of gold matches consumption, so the new mined gold is extra and has to be absorbed by the investment world. But Bitcoin’s new supply instead (at $10,000 a coin) is only $6.5 billion. This is small portion of the issuance of new gold. But what is even more, next year that issuance will halve. So the point is, Bitcoin will go up a lot further and faster than gold if the demand for haven assets increases. Even without any change in the dynamic, while gold issuance by mining will probably increase slowly next year, Bitcoin’s will halve.
Conclusion: The relative upside potential for Bitcoin is dramatically higher with the creation of coins halving about every 4 years. This means the price of Bitcoin should react like the price of gold would, if half the mines in the world are closing every 4 years and that after 12 years gold output would be down by nearly 90%.
From an investment perspective, if you believe Bitcoin will not fail completely and Bitcoin will establish itself as a new asset class in our investment world, you definitely should have a very bullish outlook for the future.
Sven Franssen