Morgan Stanley Notes: Bitcoin Cannot Match Gold as Inflation Hedge

Morgan Stanley Notes: Bitcoin Cannot Match Gold as Inflation Hedge

Morgan Stanley Notes: Bitcoin Cannot Match Gold as Inflation Hedge

$GLD, $BTCUSD, $MS, $GS

Bitcoin is better than Gold and is probably better than conventional fiat (paper) currencies as a medium of exchange.

But the conventional view that this new cryptocurrency is also superior to Gold as a hedge against inflation and uncertainty still needs to be tested, according to Morgan Stanley (NYSE:MS).

“Some claim that the protocol limiting bitcoin’s supply growth rate, underpins its value,” says Morgan Stanley equity strategist Tom Price.

“But if Bitcoin is successful long term, we should continue to see competitor cryptocurrencies and market strategies emerge to exploit the new economic rent — a Bearish risk for Bitcoin’s price.”

Mr. Price says that while Bitcoin has advantages over Gold as a medium of exchange, as it is exponentially more divisible and portable.

But, cryptocurrency is still too immature to serve as an inflation hedge. Even if Bitcoin does prove successful over time this success will inspire the development of even more competitor cryptocurrencies, preventing the Bitcoin price from ever achieving stability.

Some claim that the protocol limiting Bitcoin’s supply growth rate, underpins its value.

But if Bitcoin is successful long term, we should continue to see competitor cryptocurrencies and market strategies emerge to exploit the new economic rent.

Again, this a Bearish risk for Bitcoin’s price.

Mr. Price notes that Bitcoin users rely on electricity and Internet access to engage with the network.

Blockstream just launched a satellite network designed to allow Bitcoin users to download a full node without access to the Internet, but even this solution would still require a power source.

Gold, on the other hand, does not require a connection to the power grid.

There’s also the problem of trust.

Blockchain Capital analyst Spencer Bogart says he believes that Bitcoin is superior to Gold as both a medium of exchange and a store of value.

Remember though the Bitcoin is a recent innovation, making it hard to achieve the level of trust Gold has built throughout history.

Gold has something very important that Bitcoin lacks: a more than 1,000-year history of being a decent store of value. This is very important for trust and people’s willingness to store value in that particular asset.

That said, cryptocurrency adoption is proceeding rapidly, and the mainstream financial sector is taking note.

Goldman Sachs (NYSE:GS) acknowledges that it’s “getting harder” for them to ignore cryptocurrencies. ICO (initial coin offering) investments have surpassed early VC (venture capital) funding for Internet companies in recent months, and bankers have begun abandoning mainstream finance to found ICO investment firms.

Have a terrific weekend.

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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