Bitcoin Is Not Gold 2.0
Summary
The most famous claim of the Winklevoss brothers in 2017 is that "Bitcoin is Gold 2.0".
For Bitcoin to be Gold 2.0, it needs to share the high investment characteristic of gold: it needs to provide an effective hedge against inflation by increasing the price as inflation reduces real production. Is.
For the record, we are the latest to conclude that Bitcoin is not Gold 2.0, although it is probably the first person to show it using the tools available to middle and high school algebra students.
It is not uncommon for us to use mathematics to completely close an investment claim, but we are here.
The pitch includes the cryptocurrency Bitcoin ("BTC") (BTC-USD). The most famous claim by the Winklevoss brothers in 2017 is "Bitcoin is Gold 2.0". Here is the latest clip of the brothers repeating their pitch on CNBC on July 10, 2019.
Although he may be the most prominent pitchman for the bitcoin, he is not alone in claiming that the bitcoin has gold-like investment properties. We have selected articles from 2013 to 2022 where analysts have made similar claims:
April 29, 2013: Bitcoin Gold 2.0: Venture Capitalist
11 April 2016: Could Bitcoin be Gold 2.0?
December 10, 2020: Why Bitcoin Gold 2.0.
January 1, 2021: Billionaire Bitcoin supporters play for Gold 2.0.
December 24, 2021: Bitcoin Gold 2.0. It also fixes inflation and good ROI.
January 3, 2022: Bitcoin is 'Gold 2.0' and will reach $ 100k this year, Nexo founder reiterates
Let's talk to the elephant in the room. For Bitcoin to be Gold 2.0, it needs to share the high investment characteristic of gold: it needs to provide an effective hedge against inflation by increasing the price, as inflation reduces real yields. Gold, or as BTC enthusiasts would point out, Gold 1.0 does exactly that when real interest rates fall and turn negative as inflation rises above nominal interest rates. This is the chart that we presented in the previous analysis which showed the price of gold, which decreases the real interest rate and vice versa increases the price.
Now, here is a chart showing the value of the bitcoin with reference to the same data for the inflation-adjusted yield of 10-year permanent maturity US Treasuries for the period 17 September 2014 to 21 April 2022, which I have covered almost the entire period where we can identify that the claim of "Bitcoin Gold 2.0" has been prominently made. Spoiler alert: Bitcoin Gold is not 2.0!
The "relationship" chart with the actual production of Bitcoin looks like something that could have been created on Etch-a-Sketch. The value of BTC is either up or down.
Aside from this observation, we see in this chart three important periods in the history of bitcoin valuation:
1. 17 September 2014 to 7 October 2020. The real value of the bitcoin in US dollars has nothing to do with interest rates, despite significant changes in their value during this period. Mathematically, whenever the real interest rate changes in value, the slope of the trend is almost zero, because the value of Bitcoin does not change with them.
2. 8 October 2020 - 6 January 2022. This is the era when the biggest change in the value of bitcoin has taken place, and we see that the price of bitcoin has risen from about $ 11,000 to a peak of $ 67,567 in this second. Periodically, this corresponds to a slight change in real interest rates. In mathematical terms, the effective vertical movement in the value of Bitcoin is not described in terms of changes in real interest rates. In practice, anything that moved bitcoin prices during that time was unrelated to how inflation affected interest rates.
3. 7 January 2022 - 21 April 2022. Shown as green circles on the chart, we once again see little change in the value of Bitcoin, although real interest rates have changed significantly. Just as in the first period, the value of Bitcoin showed minimal value, or as we dare say, there is zero correlation between real interest rate changes.
For the record, we're the latest to conclude that Bitcoin is not Gold 2.0, although it is probably the first person to show it using the tools available to middle and high school algebra students. Here are other analyzes that show that bitcoin is not the most attractive feature of gold investment for extra credit reading:
• October 1, 2018: Bitcoin is not new gold - fluctuations, correlation, and portfolio performance comparison
• May 15, 2019: Why Bitcoin is not Gold 2.0.
March 16, 2020: Bitcoin is not like gold.
April 15, 2021: Ten years and $ 1 trillion later, the bitcoin is still nothing like gold.
With regard to changes in interest rates adjusted according to inflation, we have shown the value of bitcoin with a bit of discipline or reason, which is very different from how gold has performed during its joint existence. What is it. . Bitcoin Gold is not 2.0.
