Last week, the “digital currency” Bitcoin raised eyebrows when, for the first time, a Bitcoin became more valuable than an ounce of gold. While Bitcoin remains unimpressive as a form of money, the torrent of investment it’s receiving is potentially a sign of something much bigger — a golden opportunity to make the case for the gold standard.
I share Peter Schiff’s view that Bitcoin is a speculative asset rather than a medium of exchange. Bitcoin fails the single most important test of any currency — the ability to maintain a stable value. In the last year alone, Bitcoin’s price has skyrocketed from roughly $400 to nearly $1,300. Any purported “currency” that appreciates over 300 percent in a single year is plainly absurd.
But while Bitcoin does not show promise as a form of money, the fact that investment has spiked for an asset with its characteristics is highly noteworthy. Bitcoin’s defining features are its fast digital transferability (often speedier than similar bank transactions), its ability to circumvent account and merchant fees, and of course, Bitcoin’s mining process and scarcity which were deliberately designed to mimic gold.
Speculation as to what is driving Bitcoin’s acceleration has focused on factors such as capital controls in China, “a growing mistrust of national currencies,” and optimism the Trump administration will relax applicable regulations on digital currency. Although it’s difficult to tell if Bitcoin’s surge is due to its privacy, its profit potential, or a growing belief in its usefulness as money, what seems clearer is that if digital currency is the way of the future, our future looks golden.
Unlike Bitcoin, the value of an ounce of gold remains nearly unchanged from a year ago. Even amidst our new, digital frontier, there is no reason to believe any baseless digital currency will override thousands of years of history. As highly respected gold standard scholar Lewis Lehrman noted:
Gold, a fundamental, metallic element of the earth’s constitution, exhibits unique properties that enabled it, during two millennia of market testing, to emerge as a universally accepted store of value and medium of exchange, not least because it could sustain purchasing power over the long run against a standard assortment of goods and services.
If investment in digital currency continues its growth, it will lead to greater experimentation and will inevitably result in an economy increasingly transacting in gold. In fact, there are already signs that such experimentation will soon be taking place. The announcement of one digital currency backed by gold is expected March 10th at South by Southwest (SXSW). A gold-based digital currency may well be the “camel’s nose in the tent” that leads to the restoration of the gold standard. Give gold an arena to compete in, and history shows it will win.
Best of all, a more golden world is a more prosperous world. As Forbes.com columnist Ralph Benko (whom this columnist is affiliated with via the Committee to Unleash Prosperity’s Supply Side Blog) noted:
The empirical data show the classical gold standard to be the ‘gold standard’ of monetary policy. The Bank of England, in 2011, issued Financial Stability Paper No. 13. The Bank of England found that the fiduciary dollar standard badly underperforms in every major category, including economic growth, inflation, recessions, and banking crises.
While the potential for any digital currency to succeed is largely dependent on the Trump administration’s response to ongoing regulatory hurdles, and the success of critically important institutions like the Chamber of Digital Commerce that work to promote blockchain technologies, expanded use of digital assets could lead to soaring wealth creation. While Bitcoin is no substitute for the gold standard, it may very well open “the golden door.”