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Bitcoin and Ethereum as the Gold and Silver of the 21st Century

Bitcoin as the gold of the 21st century and Ethereum as digital silver – Analysts from various bank research teams are optimistic about cryptocurrencies.

Bitcoin / USD 1 Year live

"Will Bitcoin become digital gold? "Deutsche Bank Research analysts recently commented on this very question. According to their opinions, two factors give reason to believe that Bitcoin could become a form of digital gold. They also compare Bitcoin to gold and Ethereum to silver and predict that cash, cryptocurrencies, and digital central bank currencies will coexist in the future.

Bitcoin as a human need
There are two reasons why people see Bitcoin as gold. First, people have always had the need to invest their wealth in a commodity that is not commonplace and not controlled by governments. Up until now, gold would have been the first place to do that. Bitcoin could possibly fulfill this need in the future as well. On the other hand, it would have deflationary properties that offer protection against inflation.

The amount of Bitcoin is limited. The maximum number that will ever exist is 21 million. And about 89 percent of the total supply of Bitcoin is already in circulation. With many fiat currencies, central banks control the money supply, and they have increased it significantly in recent years.

Bitcoin price is volatile and remains volatile
The price of gold has also fluctuated considerably in the past. Nevertheless, most analysts warn that bitcoin prices will remain volatile. Too volatile to be considered a reliable investment, as two-thirds of bitcoins are used for investment and speculation. In addition, large purchases or market exits could significantly affect the balance between supply and demand. Moreover, the value of Bitcoin would depend in large part on what people attribute to Bitcoin based on their expectations and beliefs.

Nevertheless, control is needed
A basic prerequisite for large-scale bitcoin adoption by investors and businesses is the establishment of regulations and lowering the energy consumption of bitcoin. In doing so, in the prospect that 2021 "will be a turning point and that by 2022 a large number of economies will regulate cryptocurrencies." On the other hand, that "technological progress" will address the environmental footprint.
However, these weaknesses are not unique to Bitcoin, but more generally as a disadvantage of cryptocurrencies.

Supremacy: Bitcoin and Ethereum
Energy consumption and regulation or not, most analysts do not see the supremacy of Bitcoin followed by Ethereum in the next 5 years endangered. Bitcoin's strength lies in the fact that it was the first cryptocurrency. In addition, it would be the most traded today and would have the highest level of awareness. Second place goes to Ethereum. This cryptocurrency could benefit greatly from network effects by means of its various fields of application. Analysts seem to choose the applicability of the cryptocurrencies together with their respective market capitalization as core criteria. With these, she would at least also have a justification for the following statement:

If Bitcoin is referred to as "digital gold," then Ethereum would be the "digital silver"
One could counter that Ethereum is closer to gas or another fossil commodity. One possible justification for this classification is that the Ethereum Blockchain with its smart contracts is primarily used for applications and not for storing value like gold or silver. Instead, the role of "digital silver" speaks more to projects like Litecoin, whose properties of store of value and usability are more like Bitcoin's. However, ranking 2nd after Bitcoin, as well as the correlation of both is strongly comparable to silver after gold.

No disruption of the financial system
Although Bitcoin and Ethereum are products that can no longer be ignored simply because of their market capitalization, there is probably no threat to currencies or cash.
CBDC, cash, and cryptocurrencies will coexist. Cash will certainly not disappear, but it is expected to become less important as a means of payment. Most G20 countries are planning to regulate private cryptocurrencies more strictly. In the past three years, corresponding plans by central banks and governments around the world have accelerated.

Market potential
Considering the extreme size of the money market, which is currently still dominated by the numerous fiat currencies as well as gold, bitcoin and ethereum are still extremely small in comparison - which conversely means enormous growth potential.


Hayato Ishikawa

Mr. Ishikawa has more than 25 years of experience in the financial markets, focusing on stocks, real estate, cross-asset risk hedging, and business founding. He is co-founder of a private investment group - specializing in the western pacific region and an independent analyst as well as business advisor. Mr. Ishikawa is known for bringing technical and fundamental analysis as well as sentiment into a coherent overall assessment - unbiased financial and political journalism made in Japan.
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