MicroStrategy and the Collapse of Gold

In March of 2020, when all financial assets sold off in a panicked frenzy, Bitcoin critics were quick to call out its price drop as proof that Bitcoin wasn't a safe haven asset like gold.

As gold raced towards new all-time highs, Bitcoin was largely overshadowed for most of the spring and summer of 2020. That is, until MicroStrategy made their first Bitcoin allocation on August 11, 2020.

That move inspired dozens of other public companies to do the same, opened up a multi-trillion dollar corporate treasury market for Bitcoin, and gave Wall Street the confidence that Bitcoin could be much more than a digital version of gold.

In fact, ever since MicroStrategy's first Bitcoin purchase, Bitcoin has gone straight up, and gold has spent seven months in a slow decline.

It's hard to believe, but in the midst of the greatest fiat money printing spree in modern history, investors would have been just as well off holding US dollars instead of gold since COVID stimulus measures began in April 2020.

When it mattered most, Bitcoin was there to provide investors all over the world with protection from monetary inflation. Gold was not.

So now that Bitcoin has proven itself, the spotlight must shift to gold. It's time for investors to ask themselves whether there is a place for a slow, opaque, centralized version of Bitcoin in a 21st century portfolio.

Bitcoin's Burden of Proof

On March 12th, 2020, the price of Bitcoin crashed by almost 50% in a single day as the reality of a global pandemic sent shockwaves through markets everywhere. It wasn't long before mainstream media outlets began wondering what was wrong with Bitcoin.

On March 16, 2020, Fortune wrote "at this moment, when safe haven assets should be holding up, Bitcoin is sputtering".

On March 31, 2020, Bloomberg wrote "the token’s rout dented the notion that Bitcoin would act as a haven during times of upheaval".

On April 1, 2020, CNBC wrote that Bitcoin "hasn’t proven it can act as a safe haven in times of market turmoil".

This sentiment continued well into the summer of 2020, as Bitcoin's underwhelming price action gave skeptics a good reason to believe that Bitcoin was not a safe haven asset. Even after a steady climb back to $10,000 in the summer of 2020, convincing people that Bitcoin was worth a second look was hard, especially as gold and tech stocks raced to new all-time highs.

This gave critics enough ammo to make a reasonable case against Bitcoin. After all, stimulus packages had rolled out in all of the world's major economies, interest rates had dropped to zero, and the spring of 2020 seemed like a perfect moment for Bitcoin to thrive, yet it didn't.

Why? One possible explanation is that this was Bitcoin's very first global deleveraging event. There were no historical models to rely on, or proof that Bitcoin would hold up like gold during a money printing mania.

This lack of precedent placed the burden of proof entirely on Bitcoin. Gold had already proven its value in countless other recessions throughout history, and it was the no-brainer choice for many investors fleeing from risky assets.

To change the narrative, Bitcoin needed to show up in a big way, and it didn't disappoint.

MicroStrategy: The Straw That Broke The Camel's Back?

On August 10, 2020, the price of gold closed at $2,024/oz, marking the 4th day in history (and in a row) that gold prices closed above $2,000/oz.

On August 11, 2020, MicroStrategy filed an SEC report explaining that the company had purchased 21,454 bitcoins at a price of $250 million as part of its new capital allocation strategy.

Later that day, the price of gold closed down 4.5% to $1,932/oz.

Nobody realized it at the time, but looking back now, it's clear that August 11th represented a turning point for both Bitcoin and gold.

How big was MicroStrategy's role?

Skeptics will point out that US 10Y treasury rates also rose in August, and have continued to rise since then. Recently, these treasury rates have had an inverse correlation to gold prices, meaning gold prices tend to fall as rates rise.

However, in previous eras of monetary expansion, this correlation was positive, meaning gold prices rose as rates did. Throughout the 1970s, rates rose alongside gold prices, and in the 1980s rates fell alongside gold prices.

Bitcoiners will point out that MicroStrategy opened the door for Bitcoin to play a role in the multi-trillion dollar corporate treasury market, a market that gold was never able to capture.

Furthermore, MicroStrategy's continued enthusiasm has pushed companies like Square, Tesla, and dozens more to allocate portions of their treasury to Bitcoin too.

Since then, Bitcoin has been on a vertical climb, and August 10th was the last day that gold closed above $2,000/oz. It is now down almost 20% from its August all-time high.

Even rapidly inflating fiat currencies like the Turkish Lira have maintained their value better than gold since August 11th. It took 14,882 Turkish Lira to buy 1 oz of gold in August 2020, and it only takes 14,351 Turkish Lira to buy 1 oz of gold now.

It's hard to deny this as a clear failure for gold at a time when it was needed most.

Time for Gold To Prove Its Value

That being said, gold has thousands of years of proof that it can serve as a store of value in times of monetary uncertainty. While it's too early to write off gold entirely, it's about time that the burden of proof shifts from Bitcoin to gold.

Not only has Bitcoin shown it can be a safe haven asset that appreciates during periods of rapid monetary expansion, it has also become a tool for corporate treasuries to store their wealth in a way that gold never has.

While I have a hard time believing that the world's preferred form of sound money for thousands of years is about to be disrupted, I also have a hard time believing gold can truly compete with Bitcoin.

On all relevant metrics, Bitcoin has much better monetary properties than gold. It's more scarce, it's faster to finalize transactions, it's easier to authenticate transactions, it's easier to store, it's easier to move across space and time, and it's harder for third parties to censor transactions or seize assets.

Walmart couldn't compete with Amazon, Blockbuster couldn't compete with Netflix, and newspapers couldn't compete with Twitter. Is it possible that gold might avoid the same fate? Sure. But it's up to gold to prove that, because right now the market says otherwise.

Your move, gold bugs.