Gold has been regarded as one of the major factors in determining the value of national fiat currencies for more than 4,000 years. Simply put, the larger gold reserves a country has, the more valuable its currency is.
In recent years, comparisons of gold and cryptocurrencies, particularly Bitcoin, has been a growing trend. And whilst the two share some similarities, there is one obvious but important difference – unlike fiat currencies which are largely backed by Gold, crypto-currencies are generally not backed by anything.
With Bitcoin, which has been disrupting the financial industry and our entire conception of money since its arrival on the scene almost ten years ago, its value is primarily determined by demand and supply.
When people suddenly buy BTC in large volumes, its price simply skyrockets and, inversely, when holders sell in droves, it plummets. The same behaviour applies to the vast majority of crypto-currencies – although Stablecoins are a notable exception.
However, what distinguishes Bitcoin from other crypto-currencies is that the value of the latter is often dictated by the former. You have probably noticed that more or less all crypto-currencies enter into the red when Bitcoin’s price drops.
This is not, of course, unexpected. Whilst most traders actively buy and sell more than one crypto-currency, Bitcoin is generally their point of entry into the crypto-markets. Bitcoin, in other words, serves as their underlying asset.
We already know that one can pay for goods and services with Bitcoin and there are known cases – albeit a relatively small number – where people receive their salary in Bitcoin. But are these the only roles that BTC can play in the crypto world of the future?
What if the world adopts crypto-currencies to a much, much larger extent than it does now. What role does Bitcoin play then?
Even though there is no conclusive evidence to indicate that this will be how things pan out, there are hints that things are moving in that direction.
And in this context, Bitcoin is likely to dominate the crypto-sphere to an even greater extent than it does now. Considering that there is a limited supply of BTC, and that over time we could see a much greater number of participants in the crypto eco-system, the value of BTC will continue to climb.
And should this happen, Bitcoin will simply consolidate its position as the underlying asset which drives the entire eco-system. In other words, Bitcoin can then become the gold standard of the digital asset world. Right now, however, this is purely speculation on our part. But there’s a chance that the conjecture could hold true. And if that’s the case, there are intriguing times ahead.