bodnarchuk/iStock Editorial via Getty Images
bodnarchuk/iStock Editorial via Getty Images
It’s not often we can use math to definitively shut down a claim being made to pitch an investment, but here we are.
The pitch involves the cryptocurrency Bitcoin (“BTC”) (BTC-USD). The claim, most famously made by the Winklevoss brothers in 2017, is that “Bitcoin is Gold 2.0”. Here’s a more recent clip of the brothers repeating their pitch on CNBC on 10 July 2019.
While they may be among the most prominent pitchmen for Bitcoin, they’re far from alone in claiming Bitcoin has gold-like investing properties. Here’s a selection of articles we turned up from 2013 through 2022 where analysts have made similar claims:
Let’s address the elephant in the room. For Bitcoin to be Gold 2.0, it needs to share gold’s top investing characteristic: it needs to provide an effective hedge against inflation by rising in value as inflation reduces real yields. Gold, or as BTC enthusiasts would describe it, Gold 1.0, does exactly that when real interest rates fall and become negative as the rate of inflation grows to exceed nominal interest rates. Here’s the chart we featured in previous analysis showing the price of gold doing just that, rising in value as real interest rates decline in value and vice versa.
Now, here’s a chart that presents the value of Bitcoin with respect to the same data for the inflation-adjusted yields of 10-year Constant Maturity U.S. Treasuries over the period from 17 September 2014 through 21 April 2022, covering nearly the entire period where we can identify that the claim that “Bitcoin is Gold 2.0” has been prominently made. Spoiler alert: Bitcoin is not Gold 2.0!
The chart of Bitcoin’s “relationship” with real yields looks like something that could have been created on an Etch-a-Sketch. The value of BTC either moves sideways or up-and-down.
That observation aside, we see three main periods for Bitcoin’s valuation history in this chart:
For the record, we’re just the latest to conclude that Bitcoin is not Gold 2.0, though perhaps the first to show it using tools available to middle and high school algebra students. Here are other analyses that find Bitcoin lacks gold’s most attractive investing properties for extra credit reading:
With respect to changes in inflation-adjusted interest rates, we’ve demonstrated the value of Bitcoin either moves sideways or up-and-down with little rhyme or reason, making it very different from how gold has performed during the period of their shared existence. Bitcoin is not Gold 2.0.
References
Federal Reserve Economic Data. Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity, Inflation-Indexed. [Online Database (Text File)]. Accessed 22 April 2022.
Yahoo! Finance. Bitcoin USD (BTC-USD), 14 September 2014 through 21 April 2022. [Online Database]. Accessed 22 April 2022.
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Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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