Tuesday, January 25, 2022

Crypto’s gold standard claims are fading fast


The US-focused shakeout in financial markets has at least given us clarity on one point: bitcoin is not “digital gold” or a “store of value”, to mention two grand claims made about the cryptocurrency when its price was going up.

At $37,000, the late-afternoon level on Tuesday, bitcoin has fallen by 22% since the start of January and by 45% since recording an all-time high in early November. The crypto crew may have convoluted explanations for this setback, but the simplest one is best: bitcoin has always primarily been an instrument for pure speculation; when high-risk assets are out of favour, it will be clobbered.

If anything, bitcoin is behaving like a souped-up proxy for the technology-heavy Nasdaq index in the US, down 14% since the start of 2022. So the parallel claim about “uncorrelated returns” doesn’t stack up either.

Meanwhile actual gold, a real store of value on the evidence of a few thousand years, has been doing roughly what it is supposed to do during an inflation scare: it has fluttered sideways to gently upwards over the past few months.

None of which precludes the possibility that bitcoin will rally when risk-taking appetites recover. But, if that happens, please let’s not hear a reheated version of the thesis (pushed by a Goldman Sachs strategist, bizarrely, only a few weeks ago) that bitcoin is competing with gold in “the store of value market” and thus could hit $100,000 if it grabs a 50% share.

Come on, cryptocurrencies are not playing on the same pitch, asset-wise, as gold – and one doubts they ever will.

1 comment:

unreconstructed rebel said...

John, are you familiar with Howard S. Katz', The Paper Aristocracy? If not, I do recommend you add it to your reading list.