iFund- Is Bitcoin digital gold?

2019-05-17 01:40
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Gold can be used for hedging the falling equities markets, but it is not the case for Bitcoin, the digital gold, in this year. During the stock market crash in October, gold prices gained by 2.95%, but Bitcoin fell by 5.13%.

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In December 2017, the bitcoin boom was as fanatical as the Tulip mania in 1637. The price of Bitcoin rose from $1,000 in early 2017 to $19500 in December (see Figure 1), increasing nearly 19 times, and investors’ optimism was riding high. However, the Bitcoin bubble was burst. Its current price is below $4,000.

Figure 1: Bitcoin price from January 2017 to December 3, 2018

Source: Bloomberg

Warren Buffett believes that buying Bitcoin is not an investment, just a gambling game: buyers can only hope that the next buyer will buy their Bitcoin at a higher price. Apart from the speculative sentiment in the cryptocurrency market, the actual use of Bitcoin is still questionable. Kenneth Rogoff, the former chief economist at the International Monetary Fund and a professor of economics at Harvard, said that the main use of Bitcoin was money laundering and tax evasion.

Bitcoin wealth is centralized and its market is easily manipulated. According to the information of bitinfocharts.com, the 0.01% (about 1700 addresses), 0.07% (about 14,700 addresses) and 0.65% (about 131,000 addresses) of the total addresses owned 41.26%, 62.51% and 87.46% of total number of Bitcoins respectively. The function of the address is similar to the bank’s deposit account and is used for receiving coins. It is worth noting that a person can have more than one address. It means bitcoin is more centralized.

Figure 2: Bitcoin distribution

Source: bitinfocharts.com

The blockchain technology may be promising but the value of Bitcoin is doubtful. In particular, there have been many comments in the past, which says bitcoin is a substitute for gold. Gold can be used for hedging the falling equities markets, but it is not the case for Bitcoin, the digital gold, in this year. During the stock market crash in October, gold prices gained by 2.95%, but Bitcoin fell by 5.13%.

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