Gold and Bitcoin
Today (August 3), the U.S. stock market has seen significant declines, which is a reaction to the latest employment data released by the U.S. According to the published data, the domestic unemployment rate in the U.S. has surged to its highest level since October 2021 at 4.3%.
As a result, Bitcoin has also experienced some declines, with the latest position at around $61,000 at the time of writing. Meanwhile, as Bitcoin drops, various altcoins have seen even larger declines, as shown in the figure below.
From current expectations, a rate cut in September seems highly probable (a couple of days ago, Powell basically hinted at a rate cut in September during a press conference). Many people believe that as long as there is a rate cut, it will be beneficial for the stock market, leading to a rise in stocks. However, the core issue here lies in the word "expectation"; the rise and fall of the market are more based on various expectations.
In the past two years, it seems that many people feel the economy is not doing well, but feeling unwell and actually being unwell are two different concepts. A feeling of discomfort can still be adjusted through "expectation," but if the situation is genuinely bad and cannot be hidden, then even if a rate cut begins, it won't have much effect in the short term and will only lead to greater volatility.
As various unstable factors continue, while the U.S. stock market and other markets experience significant declines, some investors' funds have started to flow into safe-haven assets, with gold futures prices briefly reaching a new high of $2,506.4 per ounce.
Although current currencies are no longer backed by gold, due to changes in the global macro situation, to prevent severe inflation or other economic shocks, some major countries have hoarded large amounts of gold. Although Nixon ended the dollar's convertibility to gold in 1971, the U.S. still holds the world's largest gold reserves, far ahead in quantity. The U.S. government's reserve (8,133.46 tons) is almost equivalent to the total of the next three largest gold-holding countries: Germany (3,352.31 tons), Italy (2,451.84 tons), and France (2,436.91 tons), with Russia in fifth place (2,332.74 tons). As shown in the figure below.
Historically, the price of gold has always maintained a close relationship with the growth of the dollar supply, with gold prices increasing exponentially over the past 50 years. The figure below shows the relationship between gold prices and the dollar M2 supply.
Despite the U.S. having the world's largest gold reserves, this ratio is still relatively low compared to the total dollar supply. The reason the U.S. does not need to back the dollar with gold now is that they have petrodollars, as oil transactions globally are primarily conducted in dollars. The U.S. strengthens the dollar's position by ensuring continuous global demand for oil. It can be said that anyone who tries to tamper with the petrodollar is directly opposing the U.S.
Here, let’s make a new hypothesis: if the dollar supply continues to rise, but the gold reserves + petrodollars are insufficient to support the dollar's status, is there a new solution to continue strengthening the dollar's position?
Based on this point, one can't help but think of digital gold: Bitcoin.
Just a few days ago at the bitcoin2024 conference, Trump publicly stated that Bitcoin could potentially surpass gold in market value. As shown in the figure below.
Since the beginning of this year (2024), with the official approval of the spot BTC ETF, many large institutions in the U.S. have been laying out in the crypto market. For example, institutions represented by BlackRock seem to be conducting a scripted performance:
First, accumulate as much Bitcoin as possible to create a Bitcoin reserve.
Second, drive up Bitcoin and stabilize its price to surpass gold in market value.
Finally, use the reserve of digital gold to continue supporting and strengthening the dollar's position.
Of course, the above is merely a speculative script; very few people know what exactly BlackRock and those institutions are thinking.
Compared to institutions like BlackRock, MicroStrategy (one of the institutions with a core strategy of holding Bitcoin) is much more transparent. From their recently released Q2 financial report, the institution purchased 12,222 Bitcoins at a price of $805 million in the second quarter of this year, bringing their total Bitcoin holdings to 226,500 BTC (with an average price of $36,821 per Bitcoin). As shown in the figure below.
Next, let’s take a look at Bitcoin. Why is it increasingly referred to as digital gold?
First, compared to gold, the supply of Bitcoin is fixed, meaning it will never exceed 21 million. As shown in the figure below. If the U.S. holds 51% of the gold reserves, other countries can still reduce the U.S.'s dominance in gold by mining more gold. However, if the U.S. holds 51% of Bitcoin, it means they will forever possess it, as no one can mine more Bitcoin through any new means.
Secondly, as a digital asset, Bitcoin is currently the only cryptocurrency with widespread consensus. This means Bitcoin seems to be able to become a relatively perfect reserve asset, as its value will continue to increase over time, thereby gradually enhancing the value of the dollar (Bitcoin is linked to the dollar).
Of course, Bitcoin still has a long way to go to become true digital gold (and the crypto market will face more regulatory and compliance optimization issues in the future), but regardless, for those already in the crypto space, we are still in a relatively early stage. For ordinary people, at least holding 1 Bitcoin should become one of your main goals.
Some might ask, since so much has been said, why are the German and U.S. governments recently selling Bitcoin?
Let’s put it this way: if governments around the world now openly state that they will treat Bitcoin as national asset reserves, wouldn’t the price of Bitcoin skyrocket? This would only benefit the whales and retail investors who currently hold coins. If they want to concentrate their chips, the market makers would need to continuously create various conditions to shuffle the market.
In short, in 10 or 20 years, if your child can still present you with the 1 Bitcoin you left for him/her, that feeling might be akin to suddenly receiving 10 gold bars from your grandfather. As for how much Bitcoin's price can reach in the future, will it really hit $1 million? I don't know; it depends on who ultimately holds the power of discourse over Bitcoin. For ordinary people like us, what we need to pay attention to is that your actions should be determined by your position, not by the current price of the asset.
Finally, remember two dates: in 2004, the first gold ETF (GLD) was officially launched in the U.S., and in 2024, the U.S. Bitcoin spot ETF was officially approved! After the launch of GLD, it took two years to break through $10 billion, while IBIT (the BTC ETF launched by BlackRock) broke through the $10 billion mark in just seven weeks.
We are currently in a new unknown territory for Bitcoin, and the crypto era belonging to Bitcoin may be slowly ending, while a new era for Bitcoin seems to be just beginning. No matter how tumultuous the short term may be, as a steadfast Bitcoin supporter and long-term believer, I remain unmoved, patiently awaiting the future.
That concludes this issue; this is also the 495th article updated by "Talking Li."
