In early 2013, the website BitcoinTalk asked users to select a slogan for the embryonic cryptocurrency. The winner was ‘magic internet money’, with runners-up ‘in crypto we trust’ and ‘you asked for change, we gave you coins’.
However, it’s the tagline that came in eighth, ‘digital gold’, that has become synonymous with the dominant cryptocurrency.
And that is turning out to be a quandary when it comes to achieving the goal of becoming the peer-to-peer electronic cash system outlined by its mysterious founder, Satoshi Nakamoto, in late 2008.
Bitcoin’s stratospheric price surge and dizzying volatility in the subsequent years have made it a favourite for speculation rather than a way to buy and sell goods and services.
Meanwhile, advocates ranging from billionaire investor Michael Novogratz to Tyler and Cameron Winklevoss of Facebook fame are advising everyone else to hold on, or ‘hodl’ in crypto parlance, because they claim it has morphed into a digital store of value such as gold.
“It’s too good a store of value to be a good value of exchange,” said Travis Kling, who runs crypto hedge-fund Ikigai Asset Management in Los Angeles.
“If the expectation is the price is going to increase meaningfully, you don’t want to pay out all of your bitcoins for everyday use.”
Payment volume growth has slowed to about 3% this year from 15% in 2018, according to transaction processor CoinGate.
After accounting for about 98% of all crypto payments last year, it’s only about 90% now, with Ether, Litecoin, and XRP grabbing greater market share.
At CoinPayments, bitcoin went from accounting for as up to 80% of payment volume in 2018 to 60% recently.
At the same time, many analysts question the notion that bitcoin is the digital equivalent of gold, which often serves as a hedge against instability after spending centuries as the preferred measure of wealth for kings and paupers.
“Bitcoin is not really a good store of value due to its high volatility,” said Markus Brunnermeier, a professor of economics at Princeton University.
“It might be a good medium of exchange for specific transactions”, such as to get around capital controls in places like China, he said.
Beside the volatility, bitcoin also lacks any underlying usefulness such as the industrial applications for gold. And from a theoretical perspective, we don’t know how it behaves in recessions given its short existence.
“While gold rallies in recession, it is only because gold has established itself as a reserve asset, a hedge, and a stable store of value”, said John Griffin, a finance professor at the University of Texas at Austin who has studied crypto market manipulation.
“Historically, excessive speculation and fraud occurs in boom times and the fraud is revealed in the market bust times,” he said.
And while some people argue that bitcoin is a store of value because it’s outside the control of governments, that’s not entirely true.
Governments including the US have arrested numerous criminal suspects by tracing bitcoin transactions. Some government agencies now run bitcoin nodes to keep an eye on the network’s operations.
Consumers are also leery about labelling bitcoin digital gold.
Only 28% of respondents thought cryptocurrencies are the future of investing in 2019, down from 32% in 2018, according to an ING survey.
“Ultimately, if the market agrees it is a store of value, it is,” said Sam Doctor, a New York-based cryptocurrency analyst.
“And until then, it is an open question. I don’t think there is an objective criterion or moment that can definitively answer the question except in hindsight,” he said.
That doesn’t mean that bitcoin may not evolve into a store of value or a transactional currency or something else eventually.
In an October 22 tweet, Gemini Trust’s Cameron Winklevoss said: “Because bitcoin is open-source software, its possibilities are boundless. I often talk about gold as a target market cap, but that’s really just the beginning... it’s digital gold, source of truth, etc”
While bitcoin may or may not have unique properties that make it useful as money, it still lacks the characteristics that protect investors seeking a store of value, let alone the “source of truth” level of hyperbole.
“Bitcoin has been different things to different people,” said Gil Luria, managing director at DA Davidson.
“Since no one individual entity controls bitcoin, it is open for all these interpretations and uses.”