Gold is an age-old commodity. It is as analog as a 1920s Mappin & Webb clock, whereas Bitcoin is as fluid, versatile and ultra-modern as an Apple Watch.
Gold only has one physical state, that of an element from the ground. A solid substance which cannot be pared down any further than it already is, whereas Bitcoin is multi-faceted and performs many roles from a simple means of payment to the foundation of distributed ledger technology that has the ability to democratize almost every office procedure from financial compliance, to commercial law and even human resources.
Just as is the case with their tremendous differences as investable assets and tradable instruments, the fluctuation in their prices is caused by very different influencing factors.
The price of Gold is often affected by supply and demand. Rather like the diamond industry, Gold is subject to government restrictions, cartels and capital controls, and is not always portable from one nation to another making physical delivery a very precise process.
Bitcoin on the other hand, although restricted to 21 million and has more than 19 million coins currently in simulation, is a genuine asset without frontiers. It is the product of a global peer-to-peer economy that circumvents all areas of traditional investment, currency and commodity circulation considerations.
With all of those considerations having long been the case, a new one is now very present, that being the power of the individual, especially the individual with a platform and a lot of followers, in affecting the price of Bitcoin along with other cryptocurrencies.
In fact, to say that social media ‘influencers’ can affect the price of Bitcoin upward or downward is an understatement beyond rational thought. The last two weeks have been periods of extreme volatility, caused by just a few words from some cryptocurrency advocates – one notable example being Elon Musk and another being the Chinese government – bringing the price of over 5 cryptocurrencies down by a combined $700 billion.
Elon Musk & China – The Real Movers and Shakers?
Is Elon Musk an influencer? Yes, most certainly.
Is the Chinese government an influencer? Yes, just as much, if not more, than Elon Musk.
Chinese government officials are masters at PR, and the Chinese will to create its own central bank-issued cryptocurrency in the form of a digital version of the Yuan demonstrates why it would want to affect the price of unbacked, entirely freely traded cryptocurrencies, as it would prefer to be able to ensure that the entire Chinese population only uses the central bank issued version.
Simply wishing to issue its own digital Yuan is not enough, however. The government would need to find a way of creating uncertainty among Chinese traders, and the only way to do that would be to dent confidence in the most popular cryptocurrencies which have enjoyed a rally of extremely high values with absolute confidence behind them for a very long time now.
Therefore, the government likely knew that the price of cryptocurrency is media and community driven rather than market or supply and demand driven. In basic terms, that means never mind the availability or difficulty in mining, it’s what people on Twitter say that counts.
That means YOU count. It means that anyone can have their say and anyone can create and participate in the cryptocurrency market.
So why the comparison with its polar opposite, Gold?
Well, the physical commodity trading fraternity is now panicking because despite the huge drop in price which outstrips the amount lost in the global financial crisis in 2008 and happened in just 24 hours, interest in cryptocurrency couldn’t be higher.
Unfazed by the crash, smart investors are now getting in on the opportunity whilst the prices are down. Nobody is scared away as they were during the credit crunch, or during the high interest rate mortgage period of the early 1990s.
Today, an almost unbelievable $700 billion flash crash, which would have seen bankers in serious trouble and endless regulatory and criminal prosecution, is seen by the cryptocurrency fraternity as an opportunity.
This irked Barrick Gold CEO Mark Bristow who took to CNBC yesterday and denounced cryptocurrencies as inferior to Gold as a store of value.
That’s one thing you can’t do, is no one can print gold. We can still make cryptocurrencies,” he said in a “Mad Money” interview.
The entire value of Barrick Gold as a company which mines the precious metal is $44 billion, which is several times less than the amount lost in just one day this week from the value of five cryptocurrencies affected by China’s government PR that it is banning cryptocurrency as a method of payment across China.
These are two totally different dynamics. One is heavy engineering-related and mines a traditional resource, the other is entirely digital and relies on sentiment and speculation for its value and volatility.
The supply of bitcoin, which must be mined like gold but digitally, is restricted to 21 million. More than 19 million coins are currently in simulation, according to cryptocurrency blockchain explorer service Blockchain.
As for gold, about 244,000 metric tons of the metal has been mined to date, based on a count kept by the United States Geological Survey. Gold continues to be a rarity in its own right, Mr Bristow told CNBC.
“As a mining industry, gold miners haven’t been able to replace the reserves that they’ve mined” since the turn of the century, he said. “We’ve only replaced 50% of the gold we’ve mined” he said.
Mr Bristow told CNBC’s Jim Cramer that “That’s one thing you can’t do, is no one can print gold. We can still make cryptocurrencies.”
That’s right, however an important point is being missed here, and that is the nature of creating cryptocurrencies has led to enormous increases in prices and a highly interesting market that has gained the attention of an entire generation of people globally, and now that there is a huge crash, has done the opposite of what may have happened in a traditional commodities market and has garnered even more interest.