CNBC recently hosted CryptoOracle’s Lou Kerner in a segment in which he compared Bitcoin to gold, further discussing Bitcoin’s highly volatile nature.
“Some People Using Gold As A Store Of Value May Switch Over To Bitcoin”
“Over the past couple of thousand years, gold has emerged as the global store of value… We would expect that, over time, some of the people using gold as a store of value to switch over to Bitcoin,” Kerner said.
Kerner also acknowledged that the current volatility was likely to scare off some investors, but that was part of the nature of a new asset that people weren’t too certain about yet.
“You see new assets like junk bonds forty years ago… It was extremely volatile like we’re seeing with Bitcoin today, and they said it was a scam forty years ago. Now it’s the same as everything else.”
Bitcoin As A Store of Value In Tough Economic Times
Despite the wild swings in Bitcoin’s price, cryptocurrencies and any other store of value that is designed to be deflationary, these assets are often seen as a hedge against economic woes like hyperinflation.
Now that hyperinflation has hit topped 100,000% annually, Venezuelans who invest in cryptocurrencies tend to be relatively well-off compared to Venezuelans who don’t. Moreover, Bitcoin’s volatility will likely seem tame by comparison, so Venezuelans who turn to cryptocurrencies are more likely to preserve their buying power over the long run.
It’s probably no surprise that Venezuelan President Maduro not only noticed but was also inspired to create a national cryptocurrency called the Petro and attempt to reboot the national fiat currency with the “Sovereign Bolivar,” which will be tied to the Petro.
However, most observers expect the Petro to flop in the long run. The U.S. warned its residents that investment in the Petro may amount to violations of economic sanctions against Venezuela. The Venezuelan government may also have failed to learn from the results of poor economic and fiscal policies that led to the meltdown in the first place.
Governments Cannot Change The Nature of True Deflationary Assets
The good part is that governments cannot change the nature of Bitcoin, gold, and any other deflationary asset that happens to be hot right now. If Petro has a blockchain, the data from that blockchain cannot cross over to Bitcoin’s blockchain to create more than the 21 million bitcoins that will ever exist. Governments also cannot “print” more gold, platinum, or land for that matter on demand.
This means comparisons between Bitcoin and gold may be nothing new, but it’s also a fairly accurate comparison. The only difference is that it’s easier to transport cryptocurrencies on a mobile wallet and sometimes pay for things with a cryptocurrency with fast transactions than it is to carry large amounts of gold in the trunk of your car.
Bitcoin is also new so, as Kerner mentioned on CNBC, the volatility is not unexpected. It may settle given enough time and more people getting used to the concept behind this new asset, and the deflationary nature of Bitcoin also makes it attractive to people who see the volatility as near-negligible to the inflation of the local fiat currency in their region.