Our recent Squawk Walk on the streets of Taipei surveyed people at random what they would decide, given a choice to walk away with a gram of gold or a USB stick, loaded with an equivalent value of bitcoin. Did gold or Bitcoin win? Find out inside…
Bitcoin or Gold: Whats Next for Currency
by Georgi Ivanov
Our recent Squawk Walk on the streets of Taipei surveyed people at random what they would decide, given a choice to walk away with a gram of gold or a USB stick, loaded with an equivalent value of bitcoin. The responses varied, but with a slight margin, bitcoin won the competition. We have to ask – are virtual currencies on the path to revolutionizing the global financial system, or are they just a lot of hot air? The truth would have to be somewhere in the middle: changes are coming, but they will not be revolutionary, yet, cryptocurrencies do offer a new opportunity for the unprecedented democratization of global finance.
Some of the concerns with bitcoin were about its security, their volatility and apprehension about where their price would stabilize. However, some of its advantages, people said, included the convenience of transactions and that it would not be necessary to carry physical precious metals or cash around too much. Gold, on the other hand, feels more tangible, and offers greater price security and less volatility – a preference among the more financially conservative.
As the dollar’s turnover and influence are expected to recede with the growing multipolarity of the global economy over the next years and decades, the question for investors will shift to what medium best holds value, among currencies, commodities and different types of stocks. Cryptocurrencies do offer one interesting advantage: they can be created and recreated endlessly, and with some regulation, can offer the closest thing to a perpetually reproducing free market for currency. The main difference between these currencies and their traditional counterpart is that there is no central bank to control their quantity or value. They would also have a minority share in the total volume of trade, which would mean that they would follow rather than set price trends in a global perspective. The reasoning here is that the majority of investors are not risk takers and most strategic commodities and stocks will continue to be traded in the major currencies of leading economies. It is hard to say whether cryptocurrencies would have a single or double-digit share in global finance, but it is almost certain that they will be a feature and a force in a reformed system.
What shape would regulations for cryptocurrencies take? On the first level, it will be taxation, in that a share of all corporate and personal income would be sent to state coffers. The second will be that entities dealing with cryptocurrencies will be established and new banks, and they would need to be legally registered with state oversight agencies, so as to be licensed to operate. One of the contested issues would be banking secrecy, especially in light of the recent FATCA regulations, as well as offshore zones for cryptocurrencies. Overall, this will be one of the most important confrontations, as cryptocurrencies take hold in global finance.
The price of gold varies, but it is among the commodities that hold their value best over time. In a comparative perspective, it is stable insurance against the volatility of cryptocurrencies, and we might even see the development of a gold standard against which cryptocurrencies are potentially pegged to increase their predictability and make them more attractive for investment.
On the overall, cryptocurrencies offer tantalizing opportunities for trade. They might not fundamentally rearrange global finance, but might very well end up being a shock to the system. A minority stake, a gold standard, or some other format – their participation in the global financial system will certainly be one of the important shifts in 21st century economics.