As I write this article, the number of Bitcoin issued to the mining machines that memorialize electronically all new Bitcoin transactions was halved for only the fourth time in its history. This means that only 450 new bitcoin are created every day. In four more years that new supply each day will be sliced in half once again, and half again every four years until no new coins will be produced after the year 2140. 

As I write, this is also the night for Gold Rush Alaska. The Discover Channel show has renewed popular interest in the other major de facto currency. While the series deals less with gold than it does with the repair of broken construction equipment, it is interesting for me as I reminisce over my many hours fixing machines on my farm. It tells a compelling story of gold fever, though. This gold in our Earth is not from the cloud of hydrogen gas and cosmic dust expelled from a sun such as ours. Our heavy minerals came from once-huge stars. Their mass allowed them to fuse atoms into heavier elements that can’t exist but for these grandest examples of nuclear fusion. Some giant stars eventually exploded and spewed minerals such as gold across the universe. Eventually, asteroids containing these elements collided and implanted their bounty on our blue orb. 

These asteroids that may have penetrated our solar system have long since been drawn to our Earth. Our orbit is now mostly clear of such interstellar debris, so the gold we inherited is all we will ever have. But, while we cannot make more gold, there is still much to discover. 

It is the finiteness of supply of Bitcoin and gold that create their value. We demand crypto and bullion because these economic artifacts provide some utility. Gold can be made into jewelry and art, and is an important component in some high technology products. Bitcoin can provide a vehicle to transact large sums with some anonymity, to facilitate their first commercial transactions, two pizzas fourteen years ago, on May 22, 2010, for two pizzas. The 10,000 Bitcoin for those two pizzas would now be worth more than $600 million (yes, million). 

Money for transactions must provide for a unit of account (10,000 bitcoin for two pizzas), must be scarce so a flood of manufactured supply can’t dilute the value of a currency, must be a store of value that does not somehow decay, and must be recognized as a good vehicle for exchange. Both gold and bitcoin serve these functions. As more people, including speculators, decide to demand more such forms of currency, their value rises. Right now, gold is worth around $2,000 per Troy ounce, and Bitcoin about $62,000 each. 

These values are not dependent on the total supply of the currency, though. Instead, they depend on the amount newly produced and brought to market and the amount holders would be willing to sell compared to the level of demand for those who desire the currency. For instance, as the easy gold has been discovered and more elusive gold must be found, and as less bitcoin is rewarded, this new supply has been contracting. The resulting scarcity increases the price so long as people continue to wish to purchase more gold and bitcoin. 

Bitcoin demand may increase as people increasingly seek a mechanism to transact large sums, perhaps as we have seen to avoid sanctions for cash movements by war aggressors. There is also a latent demand for gold for jewelry and industrial processes, as well as a demand for those who shy away from government backed currencies. 

In these ways, gold is actually more useful and has broader support than bitcoin. Gold has an intrinsic value based on its utility in physical production. In addition, it shares with bitcoin demand for those seeking to transact outside of regular government backed currencies, and both bitcoin and gold are attractive to those who speculate their prices will rise or fall over time. Some speculate on such price changes for purely financial reasons, much as one may play with a favorite stock. Others believe that the value of alternative assets such as stocks, bonds, or dollars may fall as inflation and economic uncertainty erodes their purchasing power. 

Speculation in both bitcoin and gold has increased of late. When speculation reaches a fever pitch, even Costco gets into the act. People are flocking to buy a Troy ounce of 24 karat (99.99% pure) gold for a price a bit higher than the market spot price. Retail purchases of gold has about doubled in recent months, with Costco racking up hundreds of millions of dollars of sales. Buyers are finding that their newfound currencies don’t live up to the saying “as good as gold.” Sellers find an ounce of gold is not very liquid, meaning that a seller must find a willing buyer willing to pay the full price rather than at a discount. Taxes, fees, postage, and insurance also reduce the value a seller receives. 

Bitcoin is actually more liquid. There are ATMs that can take your cash and convert it to bitcoin. Transactions are difficult to track and easy to evade any taxes due. There are also lots of willing buyers and sellers, all suffering from FOMO (fear-of-missing-out). And a somewhat kooky young crypto bros became the President of El Salvador and has made bitcoin a legal tender there. Maybe if there was a Wizard of Oz remake, the road would be paved with Bitcoin instead of gold.

Cash transactions are somewhat anonymous, if one stays away from banks. In times of economic uncertainty, some flee from banks and government-backed currencies and hoard cash despite their fear inflation will erode cash’s value, or bitcoin and gold as a hedge against inflation and as a vent for economic fear. When I last checked, in the last three months, bitcoin has risen 18.5% in value while gold has increased 18.2% as people fleeing markets and looking for a hedge against inflation flock to gold and bitcoin instead. Economic uncertainty arising from fears the Federal Reserve is fighting a losing battle over inflation is driving this buying frenzy. 

The problem with speculation is that it obscures legitimate uses of a medium of exchange. More people may be willing to transact in crypto currencies if they were not worried about rapid price movements that may increase or decrease their transaction value. A speculative price of gold over $2,000 per ounce may make too expensive some legitimate industrial uses. Gold in a Costco bag stowed away in a safe cannot be used productively even though gold is better than just about any other metal for various electronic components. Indeed, one atom thick goldene may have even more valuable properties than the one atom thick carbon material called graphene. Speculation and hoarding may rob us of these innovations just as the volatility of the price of bitcoin deters some from what otherwise may be a useful tool for transactions. 

I’m not sure if gold or e-gold fever will break. Humans seem uncannily attracted to get-rich-quick schemes, even (or especially) when they have Ponzi characteristics of an asset that solely derives its value because others expect the price to rise. Crypto is worse than most because they have no intrinsic value. At least you can wear or admire gold or embed it in electronic devices. You can enjoy a painting, and can live in a house. But crypto is a confidence game, or a con game for short, based on the number of crypto bros now in jail. That’s not to say there cannot be some utility in blockchain at some point, and some people create new crypto in sustainable ways. Meanwhile, for most it may remain fools e-gold. I'm not saying that the price of bitcoin will crash. Indeed, if more people decide to get on the bandwagon, and because new supply is now diminished, the price could well rise further than the dramatic increase evidenced this year in today's graph. However, such a false asset without any alternative intrinsic value beyond what people would pay on speculation is kinda like a scrawny little poodle - it has no visible means of support.