The One About Bitcoin, Gold and War: Bloomberg Crypto

Welcome to Bloomberg Crypto, our twice-weekly look at the world of tokens, the blockchain and more. If someone forwarded this to you, sign up here. In today’s newsletter, Emily Nicolle wonders whether Bitcoin deserves to be considered digital gold.

How about that hedge

There’s a certain set of narratives that the Bitcoin faithful can be reliably expected to trot out. Among them: That the world’s largest token can be viewed as a safe haven asset akin to a digital form of gold and that it’s censorship-proof. This year has been an exercise in showing each of these perceptions to be wrong -- or at the very least, misguided. 

On digital gold, the outbreak of war was the wake-up call. Russia’s full-scale invasion of Ukraine on Thursday sent crypto into a spiral, with Bitcoin slumping to a one-month low and Ether declining as much as 12%. Bitcoin’s 60-day correlation with equity indices like the S&P 500 reached a record high, showing its ties to the whims of the traditional global finance market are stronger than ever.

Gold, however, acted as a real safe haven should, touching the highest level since September 2020. Now crypto investors are left wondering: What’s the use of a hedge if it doesn’t work when you really need it?

“We’ve been learning that the digital gold narrative was almost too heavy on ‘gold’ and not heavy enough on the ‘digital’ side,” Philip Gradwell, chief economist at blockchain research firm Chainalysis, said in an interview. “People think Bitcoin is scarce and therefore it’s this inflation hedge like gold, and it’s clearly not. Literally, this morning put the nail in that coffin.”

On a more sociological level, the assumption that Bitcoin’s decentralized nature would make it perfect for circumventing government censorship over citizens’ access to money in times of severe sanctions is also flawed. 

A recent (albeit much smaller) test in Canada, where an attempt to support striking truckers with Bitcoin saw their crypto wallets frozen by the authorities, has made that narrative less believable. Even for those with a high level of technical know-how, further difficulty lies in converting that crypto into useable fiat currency, which may not bode well for Russians or billionaires seeking to avoid sanctions scrutiny.

All this goes to show that the maturation of Bitcoin isn’t as far along as some have hoped. But if we don’t know what we thought we knew, where do we go from here?

Counting it out

Hearing them out

“When the time is right and if it’s needed for our revolution, we will definitely expand the list of our approved cryptocurrencies”

Tin Tun Naing 

Minister of planning, finance and investment, Myanmar NUG

What we’re reading (and writing):

• Crypto Liquidity Dries Up as Billions in Market Value Evaporates
• Coinbase Says Revenue Tops Estimate, Cautions on Trading Volume
• Sotheby’s NFT Sale, Expected to Hit $30 Million, Suddenly Canceled (New York Times)
• Metaverse Harassment Doesn’t Bode Well for Zuck’s Dreams: Parmy Olson (Bloomberg Opinion)
• Stablecoins Soar in Value as Everything Else in Crypto Shrinks

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