It’s Not Digital Gold

The bitcoin marketing machine has tried just about every trick in the book to convince naive young investors that bitcoin is digital gold. One not so subtle ploy is, well, calling it “digital gold”. Another appeals on a slightly more subliminal level. Articles in the mainstream financial media about bitcoin are ubiquitously headed with a picture of a gleaming golden coin.

This machine plays on the inclination of every young generation to reject the preceding’s values. The oldies don’t get it. Only those enlightened in the new ways do. That the oldies might have been there before doesn’t seem to occur to them.  Only a mind set like that could be such fertile ground for the notion that a 15 year track record beats 5000.

But much more objective fact shoots the digital gold meme full of holes. Bitcoin prices correlate much more closely with tech stocks than they do with gold. Today for instance gold rose 1.38%. The NASDAQ stock index, home to many tech stocks, declined 2.88%. Bitcoin declined 8.76%.

In fact bitcoin generally correlates much more strongly with stocks (risk assets) than gold. The next time you hear bitcoin hyped as digital gold, ask why. If you get any answer at all, it’s more likely to resemble a pretzel than a straight line.

4 thoughts on “It’s Not Digital Gold

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  2. cb says:

    Bitcoin is a unit of account maintained on on a decentralized electronic ledger. It has value to the extent someone is willing to pay or trade for that unit of account. Why someone would be willing to pay for that unit of account is beyond the grasp of many elders, but seems sensible to certain traders. Many traders, it might be claimed, like momentum in anything that moves, and many traders like to pump and dump anything that moves, from beanie babies to gold. Bitcoin tends to be more plausible to the younger generation.

    1. Bill Terrell says:

      Thanks, CB. Of course my point here wasn’t about the fundamental validity of bitcoin, but that regardless of what it is or isn’t, it is no substitute for gold. That’s a crucial point given its glitzy marketing as “digital gold”.

      Investors looking for digital gold are better off looking at any of the popular gold bullion ETFs on the market.

      As to the skew of bitcoin popularity towards the younger generation, the popular story there is the older folks just don’t get it. That’s another false narrative. The younger generation bitcoin enthusiasts just don’t remember the last big tech bubble. It’s not what the older generation doesn’t know, it’s what it does.

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