Disclaimer: This is not financial advice. Anything stated in this article is for informational purposes only and should not be relied upon as a basis for investment decisions. Triton may maintain positions in any of the assets or projects discussed on this website.
TL;DR
Part IV
What’s old is new again: Digital Gold
For this segment, we will provide the rationale for why many view Bitcoin as ‘digital gold’ and a ‘hard’ asset that can act as a way to hold and protect wealth. For a discussion of Bitcoin as a practical technology, see our last article here. This week’s post will similarly have a favorable slant.
We’ll start this section off with a link to Forbes article from 2023, highlighting how BTC and stablecoins can help people in times of severe calamity or war, “How Bitcoin Helps Civilians Escape the War in Sudan”. Keep this example in mind as you read the rest of this post:
Through almost the entirety of human history, transactions were largely made in varying forms of physical ‘money’. From seashells to salt, livestock, stone discs, bird feathers, rare stones and commodities, humans have always used physical items to represent and exchange value. Most recently, we would recognize this as cash – physical coins and bills that represent value held and guaranteed by issuing governments. Until 1971 in the United States, this guarantee was backed by the amount of gold (or silver) held in reserve. Since then, the US and most countries around the world have adopted a fiat money standard, where the money supply is controlled by central banks through complex financial actions in the market.
Gold is still universally viewed as a valuable thing to own, despite it literally being just a shiny rock. It has no intrinsic cash flows or ‘value’ that investors typically look for, aside from its unique elemental characteristics. Regardless, gold jewelry is seen as a status symbol and cherished across cultures, and societies throughout history have used it as commodity money and a financial asset. It is so heavily viewed this way, even today, that almost 90% of its value is attributable to this ‘monetary’ demand. Only 10% of the demand for gold is actually attributable to its use in industrial applications. In fact, central banks are still rushing to acquire gold today given the increase in global instability.
That is to say, gold is valuable, and when money was anchored to and redeemable for gold, it definitionally was too. But the move to fiat money has broken that direct link, and the value of money is more tenuous today than it was even just 50 years ago.
Wait - what do you mean? That $1 in my wallet is still worth $1 and there is no way the US government is going to collapse and make it worthless.
Yes, to the former, with heavy caveats we will touch on. To the latter – are you sure? Even that proposition is increasingly not taken for granted as the country grapples with its $36 trillion debt load. Or just ask the UK how dominant its pound is around the world today versus 100 years ago. It is also a very privileged position from which to be viewing financial stability; billions of people around the world live in far less stable countries, under far less stable regimes, without access to any ‘stable’ way to preserve wealth like the US dollar.
But here is a sobering visual, showing the purchasing power of $1 USD overtime. For simple comparison, $1 in 1900 had the same purchasing power as $26 in 2020. Said another way, the dollar has lost 97% of its value since then. Even just since 2000, the dollar has lost 42% of its value. It does not matter if a $1 bill is still worth $1 if it takes 26x times as many to buy the same items. As everybody is acutely aware from the past few years, inflation is a very real and painful thing.
This devaluation is not slowing down. The primary marker of it is the consistent inflation in the economy – targeted to be 2% per year but often rising to far higher levels. There are myriad inputs to what leads to inflation, but one of the largest is the amount of money that is freely circulating in an economy. Simply – all else equal, if there is 1 apple that costs $1, and then the amount of money doubles but the amount of apples stays the same, then 1 apple will now cost $2. That is, $1 is now worth 50% less. Around the world, the expansion of the money supply has been increasing, and on the heels of the Covid pandemic, spiked drastically. Importantly, the amount of goods and services available in the economy did not spike a commensurate amount. Thus, high inflation and heavily devalued money.
This chart above shows the massive growth in money supply for the US dollar – the global reserve currency, and the most in-demand money around the world. This problem is far more acute for emerging economies. The global average sees most currencies devalued at 2-3x the speed of that of the US. In countries with hyperinflation like Argentina, money supply growth is above 200% per year and the value of the currency is essentially collapsing in real time:
This devaluation of currencies due to inflation and money printing is precisely why investors seek higher returns from their investments, why ‘real’ assets such as real estate, infrastructure, timberland, and commodities are attractive investments, and why gold today is seen as a valuable asset to hold: these are all a store of value and a hedge against inflation and sovereign risk (i.e. currency devaluation).
Increasingly, people around the world are beginning to view Bitcoin as a similar way to store and protect wealth. Is it ‘real’ in terms of a tangible rock that you can hold or tree you can cut down? No, but as our lives are evermore digitally integrated, Bitcoin has many characteristics that do make it a ‘real’ asset that just happens to be digitally native with scarcity implemented by engineered code and game theory rather than our collective ability to find and extract more from the ground.
The concerns many people have around price stability, (hyper) inflation and lack of trust in central institutions are all clearly reflected in Bitcoin’s design decisions.
There are no capital controls, limitations or central authorities dictating how much an individual can have, who they can pay, or how they can use Bitcoin because it exists outside the control of any single nation state or other entity. It is a truly neutral, non-sovereign asset.
Bitcoin has a codified 21,000,000 maximum supply cap (pedantically, this upper limit is actually slightly lower, but 21M is close enough), with programmatic issuance baked into the code. That is, there will only ever be 21M BTC in existence. Any investor knows this with an exceedingly high degree of certainty. We have no way of knowing how much global M2 levels will rise next year, let alone next month.
Inflation is effectuated through the use of miner rewards at a set cadence. Each time a new block is mined approximately every 10 minutes, the miner that earned that block receives newly minted Bitcoin as a reward payment. This is also the mechanism that incentivizes investment in compute infrastructure that ultimately enables and secures the network.
In the beginning, new blocks earned miners 50 BTC each time. Every 210,000 blocks (works out to roughly every 4 years), the number of BTC issued as a reward each block is halved. April 2024 was the last ‘halving’ to occur, reducing new block rewards to 3.125 BTC, down from 6.25 BTC since 2020. Should miner activity continue as expected, the next ‘halving’ that reduces the reward to 1.5625 BTC will occur in early 2028. We can extrapolate this out and predict that the last BTC will be mined (e.g. issued) somewhere around the year ~2140. There are currently 19,823,771 BTC in circulation, and about 10 minutes after writing this sentence, I can be confident there will be 19,823,774, and then 19,823,777 another 10 minute after that. This pattern will continue for 120 more years.
This is all trackable in real time, by anybody in the world. This transparency around declining supply issuance, combined with a fixed maximum supply, is what gives BTC its scarcity value and helps holders trust that it will not be severely debased due to network inflation. These properties make it a unique hedge to global money printing and generally loose monetary policies, similar to gold.
Naturally, there exist many reasons to be cautious: it has a relatively short track record; ongoing uncertainties around who Satoshi Nakamoto (the pseudonymous creator of Bitcoin) actually is; a general distrust and lack of understanding of the asset class and digital technologies broadly; quantum computers; frequent negative headline news; no quantifiable ‘value’; and a concern about the long-term sustainability of its security-through-issuance model. Further, the general concept of having a ‘scarce’ digital asset feels oxymoronic given digital technologies typically mean the cost of replicating something is essentially zero. Copy and pasting anything is easy, after all.
Many of these concerns will naturally be assuaged over time as people grow more familiar with Bitcoin and blockchain technologies. Others – such as the identity of Satoshi Nakamato or the lack of quantifiable cash flows – may never be addressed. It is up to the community to adequately address the remainder, such as establishing an alternative fee model to sustain network security and upgraded encryption to defend against quantum attacks. But given there is $2 trillion riding on these being addressed, the incentives are definitely in place for the community to do so.
All of this means there has also been incredible volatility in the asset.
Anybody that looks at BTC through this ‘store of value’ lens is likely to laugh given how violent its price movements have historically been. And that is totally fair – there is a non-zero chance that the price of BTC could rise or fall 15% tomorrow. But it is still incredibly early, and as every year passes and more people see that it has never been hacked, trust in it builds. As global instability continues to rise and inflation stays elevated, the resultant degradation in wealth means more people around the world look for options to protect value, of which BTC is far easier to buy and hold than gold or real estate.
This maturation process means the volatility of BTC also steadily declines over time. At a future state – and it is obviously difficult to predict when this will be – BTC will likely approach a similar volatility range as that of commodities. It will likely never be able to reach gold’s level, but it should come close. You can already see this steady trend down in volatility happening as the asset matures. BTC currently has ~50% annual volatility, compared to gold’s ~15%. Most commodities fall between 15-30%, a range that BTC will likely settle into at maturity. The extreme price volatility that we have seen is largely a function of an ongoing discovery process, but these significant swings in price will be less pronounced at a future steady state.
For all of the reasons discussed above, and despite the continued uncertainties around it, smaller countries are beginning to look at Bitcoin. El Salvador buys Bitcoin as a sovereign asset and accepts it as legal tender. The Kingdom of Bhutan has been mining Bitcoin for years and holds the equivalent of 28% of its GDP in Bitcoin, or roughly $1B. Abu Dhabi now owns nearly $500M, and there are rumors that other Middle Eastern countries are building up their holdings.
Pension funds around the world are starting to nibble and already collectively own hundreds of millions. This is why the Chairman of the US Federal Reserve, Jerome Powell, referred to Bitcoin as ‘a rival to gold’, and why central bankers, legislators and companies around the world are beginning to look at it as a diversifying asset in their treasuries (Czechia, Hong Kong, at least 16 US states, and nearing-on-100 public companies) including even the US government.
Beyond that, the top asset managers in the world such as hedge fund titans Ray Dalio, Paul Tudor Jones, Stan Druckenmiller, Brevan Howard, Steve Cohen, and Blackrock’s Larry Fink are all believers in Bitcoin, and when the largest banks are clamoring to get involved, one has to think that there may be something there.
Will all of these people, companies and governments ultimately adopt BTC? No. At least not yet. But this level of interest marks a new paradigm in how the asset is viewed around the world; it is no longer some niche or fringe investment, but a real opportunity that the biggest allocators in the world are looking at adding to their portfolios. For those interested, here is an explanation of the benefits that adding a small allocation of crypto (e.g. 1-5%) to a diversified portfolio can provide based on modern portfolio theory (hint: lower portfolio volatility, higher Sharpe).
Many critics are quick to argue that they would rather have a bar of gold than a bunch of Bitcoin if they were hypothetically fleeing a country. Often, the main underlying reason is either that ‘it is tangible and I can touch it’ or ‘it does not rely on having access to the internet’. To the first – it is far safer and easier to transport an encrypted USB stick than it is a 30-pound bar of gold, and in 2025 you are far more likely to be able to buy food and shelter with crypto than you are a chunk of gold. Plus – you can maintain access to millions of dollars of Bitcoin through one single USB (if you have that wealth); try walking 50 feet while carrying a few hundred pounds of gold. We will remind you of a quote from the article we led with at the beginning of this post:
As for the requirement to have the internet, in fringe cases this is valid: if the sudden need arises to pay for something in the middle of the jungle, Bitcoin is not a good option. But given that anybody who has access to a bar of gold likely also has access to a mobile phone, and the internet is essentially globally available and has never been offline, that seems to be a hollow argument. If one were to bet that the internet would be more or less prominent in the future than it is today, which would be the safer bet? In the case that the world suddenly and without warning reverts to a time before computers and the internet, we have far bigger issues to worry about than bars of gold or Bitcoin.
It is also important to note that although there are only 21M BTC and the price has recently bounced around $100K, BTC is divisible by 100,000,000 units called ‘satoshis’ or ‘sats’ for short. That means, the smallest unit of BTC that someone can buy is worth ~$0.001. There is often a misconception that one can only buy a full coin or nothing at all, but this is not true. A corollary of this means that it is far more economically feasible for the average person to consistently buy small amounts of BTC over time than it is to buy and hold gold.
Don’t Trust, Verify
But how can we trust that this is all true? As some US Senators are keen on saying, “How can we put our money in the hands of some faceless, shadowy super-coders?”
One of the core tenets of digital assets is “Don’t Trust, Verify”. All of Bitcoin’s code is entirely open source, addresses and transactions are all public and can be tracked in real time, and developer activity happens in the open. Here is the snippet from the Bitcoin codebase that makes the economics of 21M supply cap and declining block rewards true. You need to do a little math to get to the 21M by 2140 targets, but there is a good explanation available here for those interested to verify for themselves.
Further, addresses and holdings can all be verified in real time, by anybody. If an entity, bank, or government claim to have X amount of Bitcoin, it is trivially easy to verify whether that is true (here is a tracker for El Salvador’s BTC purchases). For example, Blackrock offers a Bitcoin Spot ETF where they buy and hold Bitcoin onchain and then issue traditional ETF products against those holdings. If one goes to the Blackrock website, they claim that the fund has a net asset value of $48.4 billion as of end-of-day February 28. That is, they claim to hold $48.4 billion in Bitcoin that they make available for their clients to trade. With traditional products, there is no way for the average person to verify if any of that is true, and instead we are forced to just trust that they do in fact have the assets that they claim to hold. Note that all of the regulatory overhead that exists has been developed precisely because we historically can’t trust companies to do that.
With Bitcoin (and Ethereum), we do not have to trust them, we can actually verify it whenever we want. As of writing, Blackrock indeed has the assets they claim to have: $51.5 billion in BTC held onchain. This example also shows the real-time ability to monitor assets. That $48.4 billion that Blackrock posts on their website as of end-of-day February 28 is already out of date come Monday morning given price movements over the weekend. But because all of these holdings are onchain, we can see the actual underlying value changes outside of the ‘traditional’ finance hours of 9-5, Monday-Friday.
Can any of these aspects of Bitcoin be changed? Technically yes, but because Bitcoin is fully open source, that would require convincing a majority of the community that the change makes sense. It can definitely happen – and changes to the code are made frequently on the margin by a global community of developers – but the core features of the design are treated as sacred (bold, italics intentional). Even if you, the reader, are unsure that a truly neutral, non-sovereign store of value beyond gold is required, there are millions around the world that are zealously convinced that Bitcoin is needed and will defend its sanctity. There are 1.4 billion unique bitcoin addresses that have been involved in a transaction on the network, for reference. It is easy to set up new addresses, so unique addresses do not map directly to unique user counts, but when you get into the billions, the scale is becoming very real.
From a more nihilistic perspective, there are also thousands of professional Bitcoin mining and services companies around the world that have collectively invested countless billions into ensuring the network operates exactly as intended. They don’t want to see their investment suddenly go up in smoke. Many of these are multi-billion dollar publicly traded companies – including multinational financial services companies like $40 billion-dollar Fidelity - monitored and regulated by the relevant authorities and operating for the benefit of shareholders.
As an example of these protectionist dynamics, there was a massively contentious debate throughout 2015-2017 amongst the community, known as the “Blocksize Wars’. This multi-year ‘war’ arose from a relatively minor disagreement about increasing the size of each Bitcoin block from 1MB to a higher size, somewhere between 2MB to 8MB. For reference, this is arguing about a change that stays within the bounds of a single iPhone picture (between 2-8MB). If a small departure from Satoshi’s initial implementation created such a massive reaction from the community, imagine what changing a core, fundamental aspect of the code would take. The use of religious terminology throughout this section is purposeful because that is the level to which the Bitcoin community believes in what they are building.
We have intentionally left out any discussion of specific prices, and that is because it is true that like gold there is no calculable fair value of Bitcoin based on underlying cash flows. Rather, the value of Bitcoin is entirely dependent on the demand side continuing to grow against the fixed supply side, like gold. In economics terms, this is simply akin to moving along or shifting an ever-steepening demand curve against a near-vertical (e.g. perfectly inelastic) supply curve at equilibrium. As such, as long as people around the world increasingly believe that Bitcoin can act as a safe haven to store wealth, price will reflect that belief, and as that population waxes or wanes, the price of Bitcoin should follow.
There is undoubtedly speculation built into the price today that puts the current level above the current natural equilibrium, and as such, volatility and significant downside risk remains. This is why it is important to separate the long-term mature state from the 16-year-old reality we still have today. But even with that, whether or not BTC is priced fairly depends on each investor’s own view of global macroeconomics, conflict, trust in government, time horizon, future adoption and understanding of the technology. For a Sudanese refugee, they may be insensitive to price and just want to protect wealth. For a New York day trader, they may be looking to take short positions after news-generated movements break a trend line. The price simply reflects the current global average of those variables, no more, no less.
Bitcoin as ‘digital gold’ has increasingly gained strength as a narrative since it was released in 2009. ‘Gold’ here is largely used as a shorthand for ‘way to protect wealth through a neutral, non-sovereign mechanism”. For many, this is what makes Bitcoin truly valuable, above and beyond its practical innovations as a payments technology. For others, this is a bridge too far. But either way, we will leave that for the reader to decide.
We turn our attention back to the underlying technology in our next segment (e.g. blockchains broadly) and from there we will begin to expand our view to include other blockchain networks and what they can – and already are - enabling as financial technologies.
Revisiting how Bitcoin offers a secure, transparent, and scarce asset to protect wealth
Revisiting the crypto revolution: empowering peer-to-peer payments with bitcoin
Discover how Bitcoin is revolutionizing transactions and cutting costs