'Digital Gold' Was Always a Bad Idea
Bitcoin was originally created to be a peer-to-peer payment network. But in May of 2019, a completely different narrative formed.
Yesterday my latest public piece for Seeking Alpha was published. In it, I explored the possibility of Ethereum’s new narrative; ‘The Flippening.’ The Flippening is the potential moment when Ethereum’s market capitalization is larger than Bitcoin’s. Advocates of Ethereum believe this is a certainty. Bitcoin proponents would probably prefer to not see it. I shared this chart a couple days ago, but when I started my research for the SA piece, I was blown away by how much wallet growth ETH has had compared to Bitcoin over the last several years.
Non-zero Bitcoin addresses are up about 55% since January 1st 2018. The same metric for Ethereum is up almost 900% over the same time frame. Staggering. And I don’t believe it is explained away by differing starting points for each network; meaning, I don’t think ETH is benefiting from faster growth because it came out several years after BTC did. The non-zero address figure now favors ETH by about 2 to 1. ETH isn’t benefiting from arbitrary starting points, it’s winning. Bitcoin is old and slow. Ethereum is new and exciting. ETH is tech. Bitcoin is Gold. Oops, I mean ‘Digital Gold.’
The Infamous Grayscale Campaign
On May 1st 2019, Grayscale launched the #DropGold campaign. You can watch the video above; this was the first ad in the campaign. Grayscale clearly positioned Bitcoin as an alternative to Gold. I have never liked this campaign and have always felt that it was damaging to Bitcoin for two reasons:
Bitcoin and Gold should be friends.
The broader investment community doesn’t actually like Gold.
Point one is pretty straightforward. The enemy of my enemy should be my friend. Bitcoin came out of the Great Financial Crisis. It was specifically a response to bank bailouts and central bank money printing. The ethos of Bitcoin’s origin story actually align very well with what Gold advocates believe. There’s a reason why there are actually people, like myself and Lawrence Lepard, who value both. As a result, Grayscale’s marketing campaign really rubbed me the wrong way because I felt Bitcoin and Gold should not actually be competing. They should be complimentary in the same way that Gold and Silver are complimentary. In 2019, I wrote this about the campaign on Seeking Alpha:
Don't sell me why the other guy is bad if you're trying to fill the same role as the other guy. Sell me why what you provide is better than what the other guy provides. The people at Grayscale think they did that. They did not. Why? Because Grayscale isn't really competing against gold. It is competing against bitcoin.
What? Competing with Bitcoin you say? How? Some commenters pressed. But it’s true. Bitcoin was literally created to be a self-custody asset. Grayscale’s Bitcoin funds shouldn’t even really need to exist.
This is where we get to the narrative changes that have plagued Bitcoin through the years. First it was a peer to peer payment vehicle. But Bitcoin’s TPS metrics proved the network isn’t scalable on the base layer. Also BTC held by Grayscale can’t be used in transactions. It is simply hoarded. Oops, I mean HODLed. Narrative change: Bitcoin then became “Digital Gold.” Because of that narrative shift, it was viewed by some as an inflation hedge. While it could absolutely be argued that Bitcoin actually did front-run the high inflation we’ve experienced over the last year and change very effectively, anyone who was buying BTC above $60k has not really seen the inflation hedge theory work for them.
For inquiring minds who are dying to know, this is how the prices of Bitcoin, Gold, Grayscale’s Fund (GBTC), and the SPDR Gold Trust (GLD) have performed since the #DropGold campaign launched:
As I said, Grayscale wasn’t competing with Gold, it was competing with Bitcoin. Has it beat Gold since the campaign launched? Sure. But that Grayscale fund has simply not done what it was supposed to do and it has performed much more like the Nasdaq than Bitcoin. But I want to get back to narratives for a moment.
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