We’re fans of both gold and Bitcoin, because we believe that both are valuable investments/hedges/stores of value.
So seeing gold proponents like Rand Paul and Jim Rickards pick on Bitcoin makes us believe that there is a deep misunderstanding in defining terms.
US Senator Rand Paul said that Bitcoin would “have real value” when it’s tied to something else like gold or stock, because he’s a “believer in a currency having value.”
We agree that currency should have value, but Mr. Paul doesn’t care to note the $430 per bitcoin price on the markets, it seems.
Even a new crypto-currency called Minacoin was made with gold-backing in mind.
Money out of thin air
Those who follow the Bitcoin technology often are the strongest critics of the Federal Reserve and central banking in general, and see the advantages in the transparent monetary policy hard-coded into the system.
As investment banker Jim Rickards says, both dollars and bitcoins are, yes, created by computers:
“Dollars emerge from and vanish into thin air — just like bitcoins. Dollars come from computers at the Federal Reserve. Bitcoins come from computers all over the world not controlled by any central bank or government.”
Gold and bats both come from caves, but that doesn’t make gold fly.
Where Bitcoin and fiat currencies differ is that we know how many bitcoins exist now, how many will exist at any point in the future, and we know that the recipients are miners.
The Federal Reserve has been printing money at their own behest, even secretly, and giving it to recipients they themselves choose.
This monetary policy style that has reigned supreme over the last decades has driven many people to gold, because of the inability to create money arbitrarily – not to be confused with predictably creating money.
Those who believe that the act of creating money is inherently detrimental to the system it creates confuse very different systems of monetary creation.
This is where monetary policy and “inherent value” intersect.
- Where Bitcoin and Fiat are the same:
The dollar’s and euro’s and even Bitcoin’s “inherent value” is based on its monetary policy, i.e. trust in the authority of the money.
- Where Bitcoin and Fiat are different:
Trust in the authority of USD or EUR is placed with people, whereas trust in the authority of Bitcoin is placed in transparent, predictable, and democratic math.
Buy gold or Bitcoin? Why combining the two are better than banking on one.
Maybe it’s the lack of any backing or pegging that is fueling Bitcoin’s rapid growth, as an analysis by Dr. Francis Smart shows the lack of relationship of Bitcoin’s price to that of gold.
The question is not whether Bitcoin should be backed by gold, the question is if you should be backing your finances with gold and Bitcoin.