Digital gold

Henry

By Frank Karsten

“Holding cash is like sitting on a melting ice cube,” says Michael Saylor.

This American entrepreneur bought billions of dollars worth of Bitcoin in 2020 to secure his business assets. He could also put his money in the bank, but then he was sure that his wealth would shrink, since the interest on savings was lower than inflation.

The problem with a high inflation rate is that people will do more and more risky things just to avoid sitting on that ice cube. So they put their money in shares, property, art or precious metals. But these are risky investments that you have to dig into and that can give you a lot of headaches. Fortunately, Bitcoin is an interesting alternative that also has growth potential.

Property brings maintenance costs, property taxes, uncertainty about mortgage rates and a struggle with tenants. Anyone who buys art as an investment can hang it on the wall. Then you have to protect it from fire and theft, which lowers the return you want to make on it. The same applies to gold or other expensive precious metals – their security is expensive.

Governments can even ban the possession of gold. In 1933, Americans were forced to sell their gold bars and gold coins to the government. Those who broke the law risked ten years in prison.

These investment classes also have another disadvantage. You can hardly convert it into cash. If you hang a Rembrandt on your wall, you cannot cut it in half and sell half because you want to buy an expensive yacht. Those who have invested in real estate cannot take it with them when they emigrate. You have to sell it first and then cross the border with your money, which is usually difficult.

Bitcoin, often referred to as “digital gold”, has virtually none of these disadvantages. It is easy to get across the border, because it is invisible and because you can simply send it over the Internet. Its security costs next to nothing because it’s just characters that are cryptographically encrypted.

If Bitcoin is so suitable for storing value, how high can its price rise?

The first Bitcoin transaction took place on May 22, 2010 – a day that is now commemorated every year as Pizza Day. A man from Florida then paid as much as 10,000 Bitcoin for two large pizzas, which then amounted to half a cent per coin. Since then, the price has risen about 6 million times to $30,000. You’d think that the growth would stop there, but it doesn’t seem that way.

The total value of all Bitcoin on earth, the market capitalization, is now about $600 billion. This sounds like a lot, but is a fraction compared to the total gold value of $12,000 billion (trillion), or $12 trillion (trillion). The global art market is even worth about $19 trillion and the stock market as much as $115 trillion.

The total value of everything in the world is estimated at $900 trillion. Bitcoin is less than a thousandth of that. So the potential is huge, because if that portion grows to just one percent, the price of one Bitcoin will increase tenfold to $300,000.

More and more people and companies are discovering that Bitcoin is an excellent way to secure their wealth. Even Blackrock, one of the largest asset managers in the world, recently applied for a license to offer Bitcoin to clients. Founder Larry Fink even declared that “this could be a financial revolution”.

It all sounds very hopeful. But here too predictions are difficult, especially when it comes to the future. So don’t immediately empty your piggy bank to buy Bitcoin. Do proper research before you get off your ice cube.

  • Frank Karsten is the author of The Discrimination Myth (discriminationmyth.com) and co-author of The Democracy Beyond (beyonddemocracy.net).