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Xu Jin: Compared to Bitcoin, there is no asset that inspires more love and fear in the country nowadays. Bitcoin is nothing more than a high-tech variant of gold; the currency battle is also a battle of beliefs, and the historical cycle of silver has not yet ended.
The global stock market is plummeting, not to mention the bitcoin that the public is going crazy over. bitcoin was once approaching the $6,000 mark at the beginning of 2018, down 70% from last year’s record high of $20,000. At a time when the myth of wealth creation is constantly being enacted, there is no asset at the moment that inspires more love and fear in the nation than bitcoin. Love is the coveting of the wealth effect, and fear is the worry of being left behind by the times, and both emotions take turns driving the crowd. So, no matter how seniority background, upper stream and lower stream, all meet in the cryptocurrency circle, blockchain has become a popular topic for the urban middle class, and all kinds of forestry coin-issuing white papers are circulating in the circle of friends, and even some jianghu bigwigs who can wash their hands of gold, are happy to participate in all kinds of real and fake hype.
How hot is bitcoin in the end? At least for now, it’s hotter than housing prices. I used to joke that meetings in China differed from north to south, with Beijing meetings often ending with a discussion of where China is headed, and in Shanghai often ending with a discussion of housing prices. This has been a tried and true experience over the years, until recently when I realized something was off. in late january, at the annual meeting in shanghai, where I moderate the economist’s book club, even the most passionate discussion of housing prices, half of the questions asked by the people of shanghai had to do with bitcoin – sorry, I really underestimated the appeal of bitcoin.
Among most of the questions, the point that people cared most about is undoubtedly what is the difference between bitcoin and gold? In response to a similar question from the book club of The Economist, Guo Lei, the chief macro analyst of Guangfa Securities, who won first place in the New Fortune Awards in 2017, believes that the bitcoin craze is as fleeting as other Internet circle fads, and may change rounds in five or ten years, just like the former RenRen school network; precisely because it is not based on eternal human nature, so there is little similarity between bitcoin and gold, and it is difficult to find a particularly centralized measure of value.
There should be a lot of people who agree with this, but from limited observation and historical comparison, I do think that bitcoin is actually very similar to gold.
At first glance, the two are indeed very different. Gold looks very old, while Bitcoin, as a new technology application, is an ascendant compared to fiat money or even cash. First, what makes Bitcoin unique among all tokens is undoubtedly first and foremost the fact that its algorithm guarantees its finiteness, which is similar to the natural finiteness of gold. Secondly, Bitcoin’s claimed advantages of decentralization and anonymity have always existed throughout the thousands of years gold has been in use – have you ever seen anyone who can own the whole world’s gold? The anonymity of gold speaks for itself.
Finally and most importantly, what maintains the value of both is actually people’s beliefs rather than their own value. First of all, gold, from the dollar off the peg since gold, gold is actually not a currency, towards the commoditization has been decades, even when gold pegged to national currencies, gold is only nominally pegged. What’s more, the limited amount of gold makes the modern economy in the face of economic crisis moment often respond weakly, during the Great Depression, the major economies are basically who first off the gold standard, who first get economic recovery.
No wonder economics guru Keynes called it a “barbaric relic” and investment guru Warren Buffett lamented that he didn’t know why anyone would want to store gold, not to eat, not to use, but also not to appreciate in value. Even so, gold has always been a part of the people’s favorite, there are also many believers for the return to the gold standard and the call, even if the most should be against gold central banks, in fact, these years to buy gold is not a few.
As for Bitcoin, many people are betting fully on Bitcoin precisely because it could replace the current mainstream currency. This belief is predicated on the limited number of bitcoins as well as decentralization, but as you can see from the case of gold, this is precisely what may be a major obstacle to bitcoin’s inability to become a mainstream currency.
That’s why Bitcoin looks so cool, but it’s really just a high-tech variant of gold mania. No wonder Paul Krugman denounces it as a techno-mystical bubble wrapped in a cocoon of liberal ideology.
The story of gold may be a bit distant for the country, but in fact the situation may be clearer if you think about silver in Chinese history. About a thousand years ago, China invented the earliest paper money in the Northern Song Dynasty, which was considered a financial innovation hundreds of years ahead of the world. From the two Song dynasties to the Yuan and Ming dynasties, the emperor had hoped to maintain the credit of paper money with imperial power and banned silver many times for this reason, but in front of inflation again and again, the people still chose silver, which eventually became the official currency of China in the Ming dynasty, which is considered a victory of the market.
But this is only the first half of the silver story, the second half of the silver story is that, as the West evolved from the gold and silver compound standard after the gold standard, banking system, fiat money system, China is still addicted to the white metal of silver, until the Republic of China is still widely in the form of weighing money, China’s financial development is therefore very much lagging behind.
I have an interest in monetary history, and after writing “The Silver Empire” and “The Money Printers” related to financial history, I have repeatedly had friends call for a book on “The Bitcoin Empire”. In a recent discussion with Susanna Thornton, a British documentary filmmaker, she asked me a lot of monetary questions, and prompted me to rethink the present and future of Bitcoin from a monetary history perspective. She was fascinated by how Chinese history is entwined with silver in “The Silver Empire,” a documentary she’s making about the history of silver in China. She has a PhD from Oxford, and her last documentary on China was “The Story of China,” a rare six-episode series on PBS and the BBC that featured Michael Wood.
One of the questions offered in her lengthy interview is that in the 16th century there was a large number ofWhat did the Chinese government do with the silver that was flowing into China? I have thought about it, and the answer is probably, nothing. Although China became the world’s “secret vault” of silver, and the world’s silver flowed into China, contributing to the monetization of Chinese silver, this was largely a private initiative, and the official policy on currency was basically laissez-faire.
To some extent, it was this permissiveness that led to the monetary status of silver, and it was this monetization of silver that led to China’s later financial lag. For every policy, there are positive and negative effects. The impact of silver on the Chinese was not only in the tangible world, but also in the intangible world.
With silver out of the way, back to bitcoin. It is the case above that explains that while I am not optimistic about Bitcoin replacing mainstream currencies, I am not completely pessimistic about Bitcoin’s investment prospects. In addition to silver, the case of gold is similar, although the demonetization of gold also has a history of decades, but in the hearts of many people, gold is still an uncompromising currency, as soon as the wind blows, the price of gold still reacts, which shows that gold as a conceptual monetary relic even if it does not exist in reality, but also still exists in the hearts of people.
Bitcoin connotes the same thing. Its rise was based on dissatisfaction with the printing of money by major central banks. Even though bitcoin cannot replace the current fiat currency, it will still have its own advocates, supported by the wealth creation effect and the belief that this tribal effect of belief will only grow deeper with the link to the internet. And for that reason, bitcoin will not lack rabid fans, the current plunge is not enough to kill these people, bitcoin still has a chance to turn around.
In an era where anxiety is magnified and popular sentiment is projected onto an increasingly polarized world, our judgments about the future are often based on individual experiences, and often different groups of people will go in opposite directions, not only towards a departure from reality, but also towards a polarized situation where they cannot be convinced of each other. Typically, as in the case of Bitcoin, the biggest losers in the bubble of Bitcoin’s 10,000-fold rise over the past few years are probably the traditional financial industry of yesteryear. As bitcoin prices continue to renovate like Chinese housing prices, they are also considered by many to be entering typical bubble territory. Interestingly, many mainstream financiers who are bearish on bitcoin are instead jumping on the bandwagon at the moment, whether they are investment bankers or seafaring finance professors, ready to take a bare bones share of the pie – which is precisely the prelude to a topsy-turvy crash.
In summary, looking at the investment price of bitcoin from silver gold, it can be seen that the bitcoin battle will be a battle of beliefs, the future will be a process of believers constant beliefs, doubters more doubts, do not experience a long period of several rounds of bubble cleaning, the two sides will not completely let go.
People often say that faith is more expensive than gold and silver, while the price of bitcoin surpassed gold a long time ago. Although bitcoin is an electronic currency, and gold is actually somewhat similar, believe that the gold standard will always reject paper money, while those who reject gold believe that gold has long been a currency. This is, in the end, a battle of beliefs, the idea can be intangible, but often has a great impact on shaping the tangible world, even and therefore, the difference in confidence will be the divide that constitutes the anxious picture of the future middle class life.
In the end, the story of gold silver bitcoin, has not yet finally fallen.