The Gold Standard Crypto Market
The gold standard for crypto markets refers to a universal state of affairs in which most cryptocurrencies have adopted a store-of-value style and have not been heavily utilized for transactions. The term was coined by Matthew Hougan, chief executive officer of bitcoin investment firm Bitinvestor LLC and former global head of research at Bloomberg Intelligence.
The Gold Standard for Crypto Markets
Gold has been a store of value since the beginning of human civilization. It is a hedge against inflation and economic uncertainty. Gold is also a hedge against geopolitical uncertainty, currency devaluation, and political uncertainty.
Inflation:
A rise in prices due to an increase in the money supply or fall in demand for goods and services (i.e., recession).
Economic Uncertainty:
The state existing when people do not know what will happen next or cannot predict what will happen next in an economy—excessive unemployment; rapid falling prices; low production; low profits or other bad results for businesses; high taxes on business activity or other government interventions that make it difficult for businesses to operate profitably.
Geopolitical Uncertainty:
These are threats posed by foreign governments such as nuclear weapons development programs, military conflicts between nations/states/kingdoms (i..e,. wars), etc.
Currency Devaluation:
An artificial lowering of its value relative to other currencies because its own monetary system has been weakened by inflationary pressure from overprinting money without compensating increases in productivity (i..e,. deflationary bust).
Crypto Volatility Brings Gold Into Focus as the Gold Standard for Crypto Markets
Bitcoin volatility has been longstanding and well-documented, but what is often overlooked is the fact that bitcoin has shown an inverse relationship with gold during this time. The following chart shows the price of bitcoin (BTC) and gold (XAU). As you can see, when BTC was at its highest point in December 2017, XAU was at its lowest point of 2018 so far (the green line). When BTC took a nosedive from $20k to $3k in January, XAU rose from $1,300 to $1,400 at the same time. This inverse relationship suggests that investors are using one asset as a hedge against another—either hedging their bet on crypto markets or hedging their bets across all markets.
Bullion, gold investment, bitcoin investment style, store of value
The gold standard for crypto market investors is the bullion style of investing. Under this method, you purchase physical gold and store it in a safe location.
Gold has been the preferred form of money throughout history because it's durable, divisible, portable and rare. It also has intrinsic value that cannot be eroded by inflation or other economic factors. In fact, in times of extreme uncertainty and distrust in government currencies (such as we're seeing today), people tend to flock toward gold as a store of value — an alternative to unstable currency markets.
Conclusion
The cryptocurrency market is still in its infancy, but there is no doubt that it will continue to grow as more people become aware of the benefits of crypto.
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