Thoughts on the Attributes of Bitcoin

Regardless of whether in the crypto ecosystem or the non-crypto ecosystem, a firmly held belief among those who support Bitcoin (including us) has long been:

Bitcoin is "digital gold."

I have never doubted this viewpoint.

However, over the years, the increasing correlation between Bitcoin and the U.S. stock market, along with its diverging trends from gold, has led me to question this perspective.

Because if Bitcoin truly is, as we imagine, "digital gold," then after all these years, with the community expanding so much and holders transitioning from a small group of early enthusiasts to an increasingly mainstream group of institutional investors, its consensus should have strengthened many times over, and people's faith in it should have solidified countless times. Under such reinforcement, it should behave more and more like gold.

But if we carefully reflect on Bitcoin's performance in recent years, we can see that it has not increasingly resembled gold.

A typical behavior of gold is: when the world becomes more chaotic and people's confidence in fiat currency (especially the U.S. dollar) or the existing financial system weakens, they embrace gold and abandon fiat currency.

If we look back at not-so-distant history, we can see this effect of gold more clearly.

Before the collapse of the Bretton Woods system, all the world's fiat currencies were pegged to the dollar, and the dollar was pegged to gold. In the earlier industrial revolution period, the pound and many fiat currencies of developed capitalist countries were directly pegged to gold, known as the gold standard.

In those times, all measures of value were ultimately assessed in gold.

If the Bretton Woods system and the gold standard feel too unfamiliar to us, we might consider the historical accounts of the financial situation of the Nationalist government during its last two years on the mainland:

The rampant issuance of gold yuan notes and silver dollar notes led to a complete loss of credibility for fiat currency, and people only used gold for large transactions. "Huangyu" was the nickname people gave to gold during that time.

Throughout 5,000 years of human history, gold has played this role for the vast majority of the time. In most periods, whether for nations or individuals, the ultimate measure of wealth has been how much gold one possesses.

Has Bitcoin's evolution and development achieved this effect? Or will we increasingly agree that when people lose confidence in fiat currency and the existing financial system, they will embrace Bitcoin and use Bitcoin as a measure of their wealth?

We might say so, but what we say often is not as honest as our actual actions.

If we hold one Bitcoin, and its market price was $100,000 yesterday, but today it has plummeted to $50,000, if we trust Bitcoin more or measure our wealth in Bitcoin, we should remain calm and indifferent.

But I believe 95% of holders would likely be lamenting, "If only I had sold yesterday."

This actually reflects a greater trust in the dollar, measuring wealth in dollar terms.

Let’s imagine another historical scenario to see what would happen if this scenario occurred with gold:

On a certain day in 1948, in Shanghai, a yellow fish could be exchanged for 1 million gold yuan notes, but today it can only be exchanged for 500,000 gold yuan notes. Would the people of Shanghai be scrambling to exchange their gold yuan notes for yellow fish, or would they be lamenting, "If only I had sold the yellow fish yesterday"?

I think the answer is self-evident; who would still dare to trust gold yuan notes?

This comparison helps clarify the distinction between Bitcoin and gold.

In fact, in the early days of Bitcoin's inception, those idealistic enthusiasts were the ones who believed in Bitcoin more; they were more willing to measure their crypto assets in Bitcoin terms. Conversely, as crypto assets have developed and more mainstream individuals and institutions have entered this ecosystem, an increasing number of holders trust stablecoins more and prefer to measure their crypto assets in dollars (stablecoins).

Of course, we often see some people claim to hold a certain amount of Bitcoin, but in my view, this does not mean they trust Bitcoin more or measure their assets in Bitcoin; rather, they trust the dollar value of Bitcoin after conversion, caring more about how much their Bitcoin is worth in dollars. Here, Bitcoin is similar to real estate as a wealth target.

Gold took 5,000 years to establish its financial and monetary attributes in history and in people's hearts, but Bitcoin does not have such a history.

Lacking the trials and tribulations of history, at least for now, it is hard to say that Bitcoin resembles gold.

There is another viewpoint that considers Bitcoin as a hedge against the real world.

However, if we carefully review Bitcoin's performance during crises in real life over the years, we find that in the early years, some people treated Bitcoin as a hedge; for example, during the financial crisis in Cyprus, some funds flowed into Bitcoin. But as time goes on, when people lose confidence in the real world (such as a stock market crash), more and more individuals and institutions seem to prefer converting Bitcoin into stablecoins or directly into dollars to avoid current risks, rather than buying more Bitcoin to hedge against such risks.

Such behavior does not resemble a hedge against real-world crises.

So what exactly is Bitcoin's attribute?

I think it resembles a special collectible of the digital age, a collectible imbued with special significance.

It is not like gold; calling it a "store of value" feels quite forced.

Qi Baishi's paintings are also limited; they are valuable and worth a lot, but we refer to them as collectibles, not as "XX gold," nor do we typically say they are "stores of value."

For those paintings, we know:

When the economy booms and the wealthy are willing to spend lavishly, their prices soar.

But when the economy stagnates and the wealthy start to be frugal, their prices decline.

"In prosperous times, collectibles; in chaotic times, gold," those paintings are collectibles of prosperous times.

In this regard, Bitcoin is quite similar:

When the U.S. stock market soars and institutions are willing to spend lavishly, Bitcoin's price will rise.

When the U.S. stock market stagnates and institutions start to be frugal, Bitcoin's price will decline.

The correlation of Bitcoin with the U.S. stock market (economy) resembles the correlation between collectibles and the economy.

Thus, Bitcoin, to some extent, resembles a collectible, a collectible whose value has been imbued with additional meaning. Although it cannot be appreciated, its history, its special technology, and the historical context of its birth give it characteristics that other collectibles do not possess.

If this is the case, then its future trajectory will either strongly rely on the performance of the U.S. stock market (U.S. economy) or strongly depend on the development of the crypto ecosystem; it is unlikely to play the role of a risk hedge like gold.