Over the years people have believed Gold and oil to be great stores of value. They are still considered great hedges for inflation of fiat currencies because they are scarce in their supply and also not easily affordable by many. Now, it does not take a bright mind to put 2 and 2 together, because when scarcity meets high demands, the price climbs to unimaginable premium levels.
The Federal Reserve has done a great job in the past 75 years to brand the US dollar also as a great store of value. The US dollar strength has led to the establishment of strength of the US economy among the world countries which is why it is the most popular peg and recognized as the global reserve currency demanding the reigns of international trade and policy. Let’s understand what the brothers say.
Why they have lost its sheen
The National Bureau of Economic Research said that the U.S. recession that started in 2007 December ended in July 2009. The treasury operated on a deficit every year which took its debt to $22 trillion dollars at the beginning of 2020. Now that COVID-19 has entered the scene, the U.S. will run a deficit of $3.7 trillion in 2020 and $2.1 trillion in 2021, bringing the grand total to $29 trillion by September 2021. The increase in treasury is a great point of trouble which indicates that while one body of government, the Fed purchased $557 billion worth of debt from another body of government which is the treasury using money it printed. COVID-19 has added another layer of debt cake!
Oil also does not represent a reliable store of value anymore because technological advancements in fracking have increased the supply of oil. Moreover, despite supply becoming bountiful, the global demand is pushing for more renewable energy and moves to reduce carbon footprints.
Gold still is a reliable store of value and scarce on our planet, but as per the latest findings, scientists believe that asteroids contain a lot of metals including gold! There is a compilation of more than 600,000 asteroids and their composition all ready to be explored. The portability of Gold also remains a large issue.
Bitcoin needs no introduction because it is not just any flash in the pan crypto that could disappear. It is a scarce commodity and has a fixed supply. It is not subjected to any supply shock as in the case of gold or oil for that matter. Bitcoin also has some other attributes that can make it an effective hedge against inflation in the future.
- Bitcoin is portable and censorship-resistant. It is not hard to move bitcoin during a war or a pandemic, unlike Gold. With the power of the internet it can be sent anywhere and it never sleeps!
- Bitcoin is the first so it has the first-mover advantage. On top of that, it also has great network effects having a great syndicate of a community of users, developers, miners custodians, and such.
- Bitcoin is open-source implying that it can be forked. Despite many forking attempts in the past, Bitcoin still remains the numero uno in terms of market cap and liquidity.
The brothers believe that despite Gold being a prospect for the short and medium-term, bitcoin will cannibalize gold in the decade to come due to increase in technological adoption.
The Winklevoss brothers’ case for $500k Bitcoin and a hedge against inflation eating away your savings is logical and rational. It could be the right time to gear up with Bitcoin.