The recent surge in popularity of investing online in cryptocurrencies as a speculative store of value is about to see a challenge from an old foe in new-tech guise. Last week Bitcoin’s surge in value continued as the dominant cryptocurrency’s value approached $8000. The latest value climb has been driven by the Chicago Mercantile Exchange (CME) announcement that it is seeking regulatory approval to begin offering Bitcoin futures. As the world’s largest futures and commodities exchange, CME’s move is being taken as a strong indication that Bitcoin is about to establish itself within mainstream financial markets, a development which is fortifying sentiment around its future prospects.
Bitcoin is ultimately intended to be used primarily as money – a widely accepted form of currency used to pay for goods and services. However, while a growing number of retailers and vendors do accept Bitcoin, including some high-profile names such as Microsoft and Paypal, the overall number is still relatively small. There is a strong argument that at least at this stage of its development, Bitcoin is more of a speculative store of value than genuine currency. There are significantly more Bitcoin being held with a view to future price increases than actually being used in payment transactions.
There is even a debate within the Bitcoin community as to whether the cryptocurrency’s long-term future is ultimately as a payments system or store of value. As a store of value, Bitcoin would essentially be a digital alternative to gold, the asset which has historically fulfilled that role in financial markets. This begs the question as to whether we really need Bitcoin in this role, when we already have gold.
At least one London start-up believes that in gold we already have the store of value needed to protect against inflation eroding the purchasing power of fiat currencies and in times of a downturn in financial markets. And investors including hedge fund manager Hugh Sloane, Japanese technology company NEC and the Tokyo Commodity Exchange clearly agree, having contributed £6 million in seed funding.
The company in question, Glint Pay Services, says it is “reintroducing gold as money” through a debit card that allows users to pay in gold. Holders of the debit card buy gold, backed by physical reserves of the commodity held in accredited Swiss banks. The concept is that in the same way more and more retailers are starting to facilitate payment in Bitcoin, they could accept payment in gold.
One advantage of gold is that it is already a well established commodity and its price does not see the same wild fluctuation that is still very much a feature of the fledgling cryptocurrencies market. As Glint’s founder Jason Cozens puts it “Gold is the constant. In Roman times an ounce of gold would buy you a very nice toga. Today it would buy you a very nice suit.”
Gold still commonly has a place in the investment portfolios of professional investors and also private individuals investing online in stocks, funds, bonds and commodities. Its role is generally precisely that of a store of value or hedge. Perhaps Glint, its investors and Cozens are right. If Bitcoin’s main quality is to be as a store of value, what’s wrong with the one we already had – gold?