All the gold in the ocean makes a strong case for Bitcoin, say true cryptocurrency supporters.
The supply of Bitcoin is set at 21 million, and a worldwide network makes it available to anyone interested at low cost. There is approximately 197,000 tons of gold above the earth and two thirds of that has been mined since 1950.
Mining has advanced since the 49ers prospected for gold in California’s Sierra Nevada foothills east of Sacramento. Gold that cannot be obtained profitably today can be a moneymaker in the future and expand the supply.
Hundreds of gold miners are said to have illegally mined for ore on the farm of Grace Mugabe, the former first lady of Zimbabwe.
ZINYANGE AUNTONY / AFP / Getty Images
However, gold requires large capital investments to mine, transport and store. It costs roughly $ 973 to mine an ounce of gold and $ 4,161 to mine a bitcoin using a computer, industry figures show.
Bitcoin moves around the world with the ease of email and is secured by blockchain, an unbreakable transaction record.
While it is impossible to know how much gold is in the ocean, the National Oceanic and Atmospheric Administration estimates that there is about one gram of gold for every 100 million tons of water in the Atlantic and Pacific.
There is also undissolved gold on the ocean floor, but much of it is a mile or two underwater and encased in rock. There is still no inexpensive way to extract gold from seawater or mine it from the seabed and make a profit.
But if gold can one day be profitably mined from the ocean, or even mined from asteroids, could increased supply lower the price? In short, could gold become obsolete as a store of value in the future? If so, what would it replace?
The Bitcoin believers nominate the cryptocurrency.
Bitcoin supporters argue that traditional methods of creating value – revenue, spending, market share, innovation, future growth, and profit – do not apply to cryptocurrency. In addition, they say that the traditional concept of monetary value cannot accurately estimate Bitcoin.
A technician inspects a bitcoin mine in Saint Hyacinthe, Quebec on March 19, 2018.
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The cryptocurrency is a network, and like social networks, the more people use the service, the more valuable it becomes, say Bitcoin proponents.
The bitcoin versus fiat currency debate begs a fundamental question: what is money?
In the past, money consisted of shells, pearls, coins, paper currency with precious metals, or paper with nothing – and governments willing to print more.
The answer seems to be: money is what we say.
The dollar has not been backed by gold since 1971.
Treasury Secretary Janet Yellen said Friday she hoped Biden’s stimulus plan would help restore full employment by 2022. Here Yellen speaks during a press conference on December 17, 2014 at the headquarters of the Federal Reserve Board of Governors in Washington, DC.
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In general, the Federal Reserve notes derive their value from the assumption that the currency will be accepted in commercial transactions. However, the criticism of fiat currencies such as dollars, pounds and euros applies equally to Bitcoin.
A Deutsche Bank analyst said Bitcoin derives its value from the Tinkerbell Effect – the belief that it will be worth more in the future than it is today.
What if investors stop believing? If Tinkerbell crashes and burns, are estimates of the future value of Bitcoin – some up to $ 500,000 – valid?
If future estimates of Bitcoin value are invalid, is Bitcoin a good hedge against inflation?
The basic questions could be: which is bigger – potential gold reserves in the ocean or the belief of Bitcoin believers in the cryptocurrency and are both possibilities realistic?
On Friday lunchtime, Bitcoin changed hands at $ 59.378.71. Options trading suggests that the cryptocurrency could soon top its record high of $ 61,556.59.
Bitcoin is up 104.28% over the year.
To paraphrase Mark Twain, reports of deaths from cash are grossly exaggerated.
“We think cash is unlikely to go away anytime soon,” Deutsche Bank said in a research report. “In fact, the currency in circulation has grown dramatically, and more recently the COVID-19 pandemic has skyrocketed the demand for cash.”
In 1968, Jack Lefler published one of the first articles predicting the emergence of a cashless society. He believed that crumpled bills and coins would be replaced with a single card.
Citibank followed suit in the late 1970s with a similar prognosis. In a 1981 book entitled Tomorrow’s World: School, Work and Leisure, Neil Ardley predicted a cashless society by 2002. In 2007 Economist magazine published a story called The End of the Money Era.
However, the US dollar in circulation makes up just over 40% of the country’s $ 20.93 trillion economy. In Europe, cash accounts for a little less than 40% of the European Union’s GDP.
Part of the reason, according to Deutsche Bank analysts, is that U.S. households have amassed around $ 1.6 trillion in savings since the pandemic. This has increased the U.S. savings rate from nearly 6% to 8% to nearly 20%.
The Deutsche Bank logo can be seen in Berlin on August 24, 2020.
Jeremy Moeller / Getty Images
“Cash remains king among consumers,” said the analysts.
“People see cash as a ‘store of value’ and a ‘safe haven’,” the report said. “According to our proprietary survey of 3,600 people in the UK, US, China, Germany, France and Italy, a third of Americans and Europeans consider cash their preferred payment method.”
The analysts said that low central bank interest rates are a factor in increasing the currency in circulation, while higher interest rates would likely undermine the perception that cash is a store of value.
The U.S. Federal Reserve, the country’s central bank, cut interest rates to near zero as part of an effort to support the economy during the COVID-19 lockdown. Interest rates are likely to stay low until at least 2022.
The European Central Bank, the Bank of England and the Bank of Japan have taken similar measures.
German Chancellor Angela Merkel, President of the European Commission Jean Claude Juncker, President of the European Central Bank Mario Draghi, French President Francois Hollande, Spanish Prime Minister Mariano Rajoy, Greek Prime Minister Alexis Tsipras and Italian Prime Minister Matteo Renzi attend an emergency state and government of the EU Eurozone takes part in summit in Brussels, Belgium, July 7, 2015.
The analysts said low interest rates are slowing the transition to central bank digital currencies called CBDCs. But if CBDCs are widespread, people might choose to keep their money in the central bank.
“If this happens on a large scale, it would disrupt existing bank franchises and affect financial stability,” the analysts said. “Credit card volumes, conversion fees, payment transaction fees and interest margins on deposits could be seriously impacted.”
Cash is not yet a dinosaur in the digital age, but some are reluctant to accept it for routine transactions – even as the coronavirus pandemic subsides.
Sometimes in New York City it is not good to pull a dollar out of your wallet and remind a cashier to request the use of a debit card in the fine print on Federal Reserve notes that says, “This note is legal tender for all debts, public and public private. “
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