Virtual currencies have experienced growing success since the creation of the genesis block, the first block of Bitcoin, in January 2009. This such success that today the Larousse dictionary, a reference institution in the language, defines crypto-currencies as follows: The latter being “ virtual means of payment usable mainly on the Internet, relying on cryptography to secure transactions and the creation of units, and escaping any control from regulators and central banks ”.
Proof of the enthusiasm they arouse, in 2019 the Ministry of Economy and Finance identified 2,871 crypto-currencies in circulation in the world ( Bitcoin, Dodge, Ether, Ripple, etc.) for a cumulative value of 2000 billion US dollars (abbreviated USD) as of April 2021. Some companies no longer hesitate to qualify these digital assets as safe havens, in the same way as gold, despite one of the most volatile prices, such as the recent setbacks of Bitcoin, the price of which between April and July. 2021 fell by 50%.
The comparison with gold seems all the more delicate since crypto-currencies are not tangible assets and they do not seem to perfectly meet the canonical definition of a currency, the latter being a unit of account, a medium of exchange, and a store of value. It is moreover on this last function that the difference with gold is the most remarkable.
Therefore, to draw a comparison between gold and a crypto-currency, it seems more relevant to compare their volatility and their profitability in the long term.
Cryptocurrencies ignite and burn
First, a comparison of the assets considered should be drawn up based on their volatility.
The latest bitcoin news
On Tuesday, April 13, 2021, the price of Bitcoin reached 62,732 USD. On Friday, July 16, 2021, the value of this asset had fallen below the USD 27,000 mark, a drop of 57% in three months. While recent price trends alarm some specialists like Michael Burry – the very man who announced the 2008 subprime crisis – it is of course premature to conclude that crypto-currencies are certain to die. However, these fluctuations make it possible to identify the first weakness of Bitcoin, and more broadly of crypto-currencies against gold: their volatility.
Tweets for economic fundamentals
This price volatility thus prevents crypto-currencies from becoming permanent stores of value. Digital assets do not have economic fundamentals and are not pegged to any value other than the law of supply and demand. Regarding Bitcoin “ We can neither see it, nor touch it, nor even attach it to any activity. […] bitcoin indeed does not have indisputable and undisputed fundamentals “. This lack of a foundation in the real economy, therefore, exposes them to influence games, in particular on social networks, as evidenced by Elon Musk’s interventions on Twitter. In January 2021, the leader of Tesla, who had added an “emoji” and the word “Bitcoin” to his Twitter micro biography, would have caused the price of this asset to jump by 14%.
The volatility of the price of gold is explained economically
Admittedly, the volatility of the price of gold is sometimes significant, up to more than 12% on average per day in 2008. Some will consider such differences significant, however, unlike cryptocurrencies, it is possible to analyze these fluctuations economically. In fact, this metal is a safe haven asset and we observe a countercyclical trend in its price. The tighter the economic situation, the more gold is valued by investors and vice versa.
