Why gold is valuable tells you why Bitcoin might be
8 min readJanuary 6, 2025
Gold has 5,000 years of collective belief. Bitcoin has 16.
Whether Bitcoin becomes "digital gold" depends on the same thing gold depends on: sustained collective belief that it will hold value. The technology provides advantages—better portability, instant verifiability, programmable scarcity. But gold's value isn't about technology. It's about mimetic contagion: people value it because other people value it.
Inflation is the rate at which the
general price level of goods and services rises.
Financial regulators employ various methodologies to measure inflation,
and monetary policy uses inflation as a mechanism to manage debt obligations
over time.
This allows governments to repay debt with currency of diminished value compared
to when borrowed, effectively transferring wealth from creditors to debtors.
Over time,
this leads to loss of purchasing power and increased nominal asset prices,
primarily benefiting asset owners while impacting wage earners at the point of
consumption.
Traditional financial systems have experienced persistent inflation for
centuries.
The US Dollar, the world's dominant reserve currency,
has lost approximately 97% of its purchasing power since the Federal Reserve's
establishment in 19131.
To help individuals hedge against inflation,
governments offer bonds that pay fixed rates of return.
These returns have typically ranged between 2-4% annually over recent
decades2.
Banks capitalize on the spread between rates paid to depositors on savings
accounts and rates received from government bonds and lending
activities3.
At certain periods, while government bond yields exceeded 2%,
major banks offered savings rates as low as 0.01%—a spread of nearly 200:1.
Money serves three purposes: unit of account, store of value,
and medium of exchange4.
If currency cannot be used to purchase goods and services, it fails as money.
If it loses significant value over a year, a day, or even an afternoon—as the
German population experienced during the 1923
hyperinflation
documented in When Money
Died—it fails as
money.
Rather than hold depreciating national currencies like the Turkish Lira or South
African Rand and experience declining purchasing power, many individuals have
adopted Bitcoin,
USDT, or
other cryptocurrencies that enable pseudonymous,
secure value transfers and opportunities for capital appreciation.
USD remains the dominant global reserve currency.
All other currencies are priced against and dependent upon it.
For national currencies,
appreciation against USD generally indicates economic weakness,
as it requires more local currency to purchase the same quantity of USD.
The Turkish Lira has lost most of its value since 2018:
Figure 1: Turkish Lira Devaluation vs USD, 2018-2025.
The TRY/USD exchange rate demonstrates severe currency devaluation,
with the lira losing over 80% of its value against the dollar during this period
due to inflation and monetary policy challenges.
The South African Rand has experienced extreme volatility over the past decade:
Figure 2: South African Rand vs USD, 2014-2025.
The ZAR/USD exchange rate exhibits sustained volatility and general depreciation
trend, reflecting South Africa's economic challenges and commodity price
dependencies.
Bitcoin holders have substantially outperformed holders of traditional
currencies over the past decade.
The famous "Bitcoin Pizza" transaction saw 10,000 BTC exchanged for two pizzas
valued at approximately $25-30 on May 22, 2010, representing a price of roughly
$0.0025-0.003 per BTC5.
Bitcoin reached an all-time high of $108,077 on January 6, 20256.
Figure 3: Bitcoin price, 2010-2025.
USD holders experienced significant purchasing power decline relative to Bitcoin
over this period:
Figure 4: USD purchasing power vs Bitcoin, 2010-2025.
Physical gold bars have historically outperformed most assets during periods of
economic uncertainty.
As a result, gold has become a safe haven
asset in the portfolio
allocation frameworks of institutional investors.
Capital flows from speculative investments to safe-haven assets do not occur
automatically.
They result from investor psychology influenced by mimetic
desire—people valuing assets
because others value them—often manifesting gradually before accelerating
rapidly in a phenomenon known as mimetic
contagion.
Beyond its use in jewelry and select manufacturing applications (electronics,
aerospace), gold is perceived to exist outside traditional financial systems.
However,
central banks and financial institutions hold the largest gold reserves
globally7.
Gold derivatives markets are substantial,
and price manipulation cases have resulted in significant regulatory enforcement
actions8.
Figure 5: JPMorgan Gold Market Manipulation.
JPMorgan Chase faced nearly $1 billion in fines for precious metals market
manipulation, highlighting how even "safe haven" assets are subject to
institutional price manipulation through derivative markets.
Investors and media analysts have referred to Bitcoin as "digital gold," partly
because this analogy provides the most accessible framework for understanding
its market role and partly because the comparison has validity.
While gold has performed well historically during economic distress,
this appreciation stems from extrinsic rather than intrinsic value.
Gold is difficult to transport or store at scale.
The precious metals industry is highly concentrated among a relatively small
number of institutional players.
Gold's price fluctuates primarily based on extrinsic valuation—collective belief
in its value rather than fundamental utility.
Mimetic desire,
as theorized by René Girard, suggests people desire objects because others
desire them.
In asset markets,
this manifests as investors purchasing gold not for its industrial utility but
because other investors and institutions value it, creating self-reinforcing
price dynamics.
Figure 6: Gold Price Chart, Long-term.
Gold's price action demonstrates a classic cup and
handle technical
pattern, a formation suggesting continuation of the prior uptrend based on
historical price behavior rather than fundamental value changes.
In its current state,
Bitcoin should not serve as a primary transactional currency due to price
volatility.
Arguments for a decentralized global currency have theoretical merit,
but the practical reality favors continued USD dominance for near-term
transactions.
Prominent Bitcoin advocates like Michael
Saylor (MicroStrategy CEO)
project significant USD devaluation and
potential hyperinflation
scenarios9.
Simultaneously,
Saylor's company and institutional investors are accumulating substantial
Bitcoin positions, concentrating ownership among corporate and Wall Street
entities rather than distributing it broadly.
This introduces new dynamics around ownership concentration and institutional
influence.
Instead of serving as a payment mechanism,
Bitcoin could function as a store of value due to its advantages over gold
listed in the table above.
Scarcity is a key component of both gold and Bitcoin's value proposition.
Gold's scarcity depends on geological factors (finite earth deposits),
extraction economics (mining costs), physical properties (metal streaming),
speculative future supply (asteroid mining)10,
and institutional concentration.
Bitcoin's scarcity depends on approximately 20 lines of
code11:
Figure 7: Bitcoin Supply Cap Code.
The Bitcoin protocol's supply cap is enforced through consensus rules in the
software.
This code limits total supply to 21 million BTC,
with the final bitcoin scheduled for mining around 214012.
A small group of Bitcoin Core developers
maintains the reference implementation software.
Any protocol change requires consensus among this development community and,
critically, adoption by the majority of network participants (miners,
node operators, users).
Currently, consensus rules define a maximum supply of 21 million BTC.
Most of that supply already exists,
with the final bitcoin scheduled for creation around 214012.
If all Bitcoin Core developers agreed to change the supply cap,
a majority of computers on the network would still need to update their software
and validate the new supply schedule.
Bitcoin's verification process—proof-of-work
mining—is an expensive
undertaking.
High capital and energy costs have resulted in a small number of mining
pools controlling the majority of
network hash power13.
While the 21 million cap theoretically could be changed,
doing so contradicts the economic interests of developers, miners,
and the network participants.
Such a change would likely require a catastrophic event or fundamental shift in
network incentives14.
However,
Bitcoin faces several risks that potential investors should
consider15:
Regulatory Risk: Government crackdowns, restrictions on exchanges,
or outright bans could significantly impair accessibility and value.
Technological Vulnerabilities: While the Bitcoin protocol has proven robust,
quantum computing advances or undiscovered cryptographic vulnerabilities pose
theoretical long-term risks.
Extreme Price Volatility: Bitcoin has experienced multiple 80%+ drawdowns,
making it unsuitable for risk-averse investors or short time horizons.
Physical Security Threats: The $5 wrench
attack represents a
fundamental security concern where physical coercion bypasses cryptographic
protections.
High-profile attacks on cryptocurrency holders highlight real-world security
challenges facing the industry.
Although gold has not served as a practical transactional currency for
centuries, major financial institutions and portfolio managers recommend
allocating 1-5% of investment portfolios to gold as a safe-haven
asset16.
Gold will store value until collective belief shifts and it doesn't.
If scarcity is the dominant argument for value,
more scarce assets could replace gold if market narratives shifted.
Bitcoin is one such candidate.
Its fixed supply, superior portability, instant verifiability,
and global transferability offer technological advantages over physical gold.
However, Bitcoin's volatility, regulatory uncertainty,
and relative youth as an asset class distinguish it from millennia-old gold.
Gold has 5,000+ years of cultural and institutional acceptance as a store of
value.
Bitcoin has 16 years.
Whether Bitcoin becomes digital gold depends on the same thing gold depends on: sustained collective belief. Gold has 5,000 years of it. Bitcoin has 16.
Using the BLS CPI Inflation
Calculator, $1 in 1913 has
the purchasing power of approximately $30-33 in 2024, representing ~97%
purchasing power loss.
Changing Bitcoin's 21 million supply cap would require a
contentious hard fork and would likely split the network. ↩
For comprehensive analysis of Bitcoin risks,
see various sources including central bank research papers, academic studies,
and industry analysis from firms like Fidelity Digital Assets. ↩
Traditional portfolio allocation frameworks (e.g.,
Ray Dalio's All Weather Portfolio) recommend 5-10% gold allocation. ↩
Comments
Loading comments...
Digital Gold
finance
Why gold is valuable tells you why Bitcoin might be
8 min readJanuary 6, 2025
crypto
bitcoin
gold
inflation
Gold has 5,000 years of collective belief. Bitcoin has 16.
Whether Bitcoin becomes "digital gold" depends on the same thing gold depends on: sustained collective belief that it will hold value. The technology provides advantages—better portability, instant verifiability, programmable scarcity. But gold's value isn't about technology. It's about mimetic contagion: people value it because other people value it.
Inflation is the rate at which the
general price level of goods and services rises.
Financial regulators employ various methodologies to measure inflation,
and monetary policy uses inflation as a mechanism to manage debt obligations
over time.
This allows governments to repay debt with currency of diminished value compared
to when borrowed, effectively transferring wealth from creditors to debtors.
Over time,
this leads to loss of purchasing power and increased nominal asset prices,
primarily benefiting asset owners while impacting wage earners at the point of
consumption.
Traditional financial systems have experienced persistent inflation for
centuries.
The US Dollar, the world's dominant reserve currency,
has lost approximately 97% of its purchasing power since the Federal Reserve's
establishment in 19131.
To help individuals hedge against inflation,
governments offer bonds that pay fixed rates of return.
These returns have typically ranged between 2-4% annually over recent
decades2.
Banks capitalize on the spread between rates paid to depositors on savings
accounts and rates received from government bonds and lending
activities3.
At certain periods, while government bond yields exceeded 2%,
major banks offered savings rates as low as 0.01%—a spread of nearly 200:1.
Money serves three purposes: unit of account, store of value,
and medium of exchange4.
If currency cannot be used to purchase goods and services, it fails as money.
If it loses significant value over a year, a day, or even an afternoon—as the
German population experienced during the 1923
hyperinflation
documented in When Money
Died—it fails as
money.
Rather than hold depreciating national currencies like the Turkish Lira or South
African Rand and experience declining purchasing power, many individuals have
adopted Bitcoin,
USDT, or
other cryptocurrencies that enable pseudonymous,
secure value transfers and opportunities for capital appreciation.
USD remains the dominant global reserve currency.
All other currencies are priced against and dependent upon it.
For national currencies,
appreciation against USD generally indicates economic weakness,
as it requires more local currency to purchase the same quantity of USD.
The Turkish Lira has lost most of its value since 2018:
Figure 1: Turkish Lira Devaluation vs USD, 2018-2025.
The TRY/USD exchange rate demonstrates severe currency devaluation,
with the lira losing over 80% of its value against the dollar during this period
due to inflation and monetary policy challenges.
The South African Rand has experienced extreme volatility over the past decade:
Figure 2: South African Rand vs USD, 2014-2025.
The ZAR/USD exchange rate exhibits sustained volatility and general depreciation
trend, reflecting South Africa's economic challenges and commodity price
dependencies.
Bitcoin holders have substantially outperformed holders of traditional
currencies over the past decade.
The famous "Bitcoin Pizza" transaction saw 10,000 BTC exchanged for two pizzas
valued at approximately $25-30 on May 22, 2010, representing a price of roughly
$0.0025-0.003 per BTC5.
Bitcoin reached an all-time high of $108,077 on January 6, 20256.
Figure 3: Bitcoin price, 2010-2025.
USD holders experienced significant purchasing power decline relative to Bitcoin
over this period:
Figure 4: USD purchasing power vs Bitcoin, 2010-2025.
Physical gold bars have historically outperformed most assets during periods of
economic uncertainty.
As a result, gold has become a safe haven
asset in the portfolio
allocation frameworks of institutional investors.
Capital flows from speculative investments to safe-haven assets do not occur
automatically.
They result from investor psychology influenced by mimetic
desire—people valuing assets
because others value them—often manifesting gradually before accelerating
rapidly in a phenomenon known as mimetic
contagion.
Beyond its use in jewelry and select manufacturing applications (electronics,
aerospace), gold is perceived to exist outside traditional financial systems.
However,
central banks and financial institutions hold the largest gold reserves
globally7.
Gold derivatives markets are substantial,
and price manipulation cases have resulted in significant regulatory enforcement
actions8.
Figure 5: JPMorgan Gold Market Manipulation.
JPMorgan Chase faced nearly $1 billion in fines for precious metals market
manipulation, highlighting how even "safe haven" assets are subject to
institutional price manipulation through derivative markets.
Investors and media analysts have referred to Bitcoin as "digital gold," partly
because this analogy provides the most accessible framework for understanding
its market role and partly because the comparison has validity.
While gold has performed well historically during economic distress,
this appreciation stems from extrinsic rather than intrinsic value.
Gold is difficult to transport or store at scale.
The precious metals industry is highly concentrated among a relatively small
number of institutional players.
Gold's price fluctuates primarily based on extrinsic valuation—collective belief
in its value rather than fundamental utility.
Mimetic desire,
as theorized by René Girard, suggests people desire objects because others
desire them.
In asset markets,
this manifests as investors purchasing gold not for its industrial utility but
because other investors and institutions value it, creating self-reinforcing
price dynamics.
Figure 6: Gold Price Chart, Long-term.
Gold's price action demonstrates a classic cup and
handle technical
pattern, a formation suggesting continuation of the prior uptrend based on
historical price behavior rather than fundamental value changes.
In its current state,
Bitcoin should not serve as a primary transactional currency due to price
volatility.
Arguments for a decentralized global currency have theoretical merit,
but the practical reality favors continued USD dominance for near-term
transactions.
Prominent Bitcoin advocates like Michael
Saylor (MicroStrategy CEO)
project significant USD devaluation and
potential hyperinflation
scenarios9.
Simultaneously,
Saylor's company and institutional investors are accumulating substantial
Bitcoin positions, concentrating ownership among corporate and Wall Street
entities rather than distributing it broadly.
This introduces new dynamics around ownership concentration and institutional
influence.
Instead of serving as a payment mechanism,
Bitcoin could function as a store of value due to its advantages over gold
listed in the table above.
Scarcity is a key component of both gold and Bitcoin's value proposition.
Gold's scarcity depends on geological factors (finite earth deposits),
extraction economics (mining costs), physical properties (metal streaming),
speculative future supply (asteroid mining)10,
and institutional concentration.
Bitcoin's scarcity depends on approximately 20 lines of
code11:
Figure 7: Bitcoin Supply Cap Code.
The Bitcoin protocol's supply cap is enforced through consensus rules in the
software.
This code limits total supply to 21 million BTC,
with the final bitcoin scheduled for mining around 214012.
A small group of Bitcoin Core developers
maintains the reference implementation software.
Any protocol change requires consensus among this development community and,
critically, adoption by the majority of network participants (miners,
node operators, users).
Currently, consensus rules define a maximum supply of 21 million BTC.
Most of that supply already exists,
with the final bitcoin scheduled for creation around 214012.
If all Bitcoin Core developers agreed to change the supply cap,
a majority of computers on the network would still need to update their software
and validate the new supply schedule.
Bitcoin's verification process—proof-of-work
mining—is an expensive
undertaking.
High capital and energy costs have resulted in a small number of mining
pools controlling the majority of
network hash power13.
While the 21 million cap theoretically could be changed,
doing so contradicts the economic interests of developers, miners,
and the network participants.
Such a change would likely require a catastrophic event or fundamental shift in
network incentives14.
However,
Bitcoin faces several risks that potential investors should
consider15:
Regulatory Risk: Government crackdowns, restrictions on exchanges,
or outright bans could significantly impair accessibility and value.
Technological Vulnerabilities: While the Bitcoin protocol has proven robust,
quantum computing advances or undiscovered cryptographic vulnerabilities pose
theoretical long-term risks.
Extreme Price Volatility: Bitcoin has experienced multiple 80%+ drawdowns,
making it unsuitable for risk-averse investors or short time horizons.
Physical Security Threats: The $5 wrench
attack represents a
fundamental security concern where physical coercion bypasses cryptographic
protections.
High-profile attacks on cryptocurrency holders highlight real-world security
challenges facing the industry.
Although gold has not served as a practical transactional currency for
centuries, major financial institutions and portfolio managers recommend
allocating 1-5% of investment portfolios to gold as a safe-haven
asset16.
Gold will store value until collective belief shifts and it doesn't.
If scarcity is the dominant argument for value,
more scarce assets could replace gold if market narratives shifted.
Bitcoin is one such candidate.
Its fixed supply, superior portability, instant verifiability,
and global transferability offer technological advantages over physical gold.
However, Bitcoin's volatility, regulatory uncertainty,
and relative youth as an asset class distinguish it from millennia-old gold.
Gold has 5,000+ years of cultural and institutional acceptance as a store of
value.
Bitcoin has 16 years.
Whether Bitcoin becomes digital gold depends on the same thing gold depends on: sustained collective belief. Gold has 5,000 years of it. Bitcoin has 16.
Using the BLS CPI Inflation
Calculator, $1 in 1913 has
the purchasing power of approximately $30-33 in 2024, representing ~97%
purchasing power loss.
Changing Bitcoin's 21 million supply cap would require a
contentious hard fork and would likely split the network. ↩
For comprehensive analysis of Bitcoin risks,
see various sources including central bank research papers, academic studies,
and industry analysis from firms like Fidelity Digital Assets. ↩
Traditional portfolio allocation frameworks (e.g.,
Ray Dalio's All Weather Portfolio) recommend 5-10% gold allocation. ↩
