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RE: As BTC approaches the price of 1 oz of Gold... (for beginners)

in #money7 years ago

Pure market cap to market cap comparisons are helpful only to get a sense of proportion. Bitcoin is beginning to behave like a currency - i.e., like money. It is being traded, it is being used as a unit of measure in exchange of goods. It is being used as a store of value - all classic definitions for money.

Consequently, it is helpful to start using money concepts to describe it compared with other currencies and other assets. The key concept for money is the velocity of money - how often it gets rotated through the system through exchanges. With a relatively fixed supply and growing usage (i.e., velocity) the demand for Bitcoin will rise - hence the price will rise.

Gold no longer has all the hallmarks of money principally because it is too complicated to use as a medium of exchange. It is now seen much more as a store of value. And that will be the key differentiator that will see increasing divergence in the value of Bitcoin compared to Gold.

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Consequently, it is helpful to start using money concepts to describe it compared with other currencies and other assets.

You are right. I was tempted to write about monetary comparisons, global money supply percentages etc, but I had to suppress myself in order to keep it in context (gold comparisons as the price approaches parity).

For the uninitiated it often sounds preposterous that Bitcoin can be more expensive than Gold...

Gold no longer has all the hallmarks of money principally because it is too complicated to use as a medium of exchange. It is now seen much more as a store of value.

I'd note here that in western / developed countries gold transactions are almost non-existent, yet in some developing countries gold is still used (not officially though). It kind of depends on the location.

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