Let’s settle down and stop thinking in terms of illusions. It’s time to get the numbers out.
Let’s talk about predictions. I’m referring specifically to the predictions made by others. What do people say about the future price of Bitcoin? What are the projections? The stock/flow model, popularized by PlanB, is often used to make price predictions. This is a model that emphasizes the scarcity of Bitcoin, giving importance to supply and halvings. In the prediction process, the charts are usually used under the principle that history repeats itself. But is continuous exponential growth possible in an infinite system? In other words, can the price of Bitcoin go up forever? What’s the ceiling?
People who are somewhat skeptical of over-fantastic predictions are usually labeled „bearishers. It turns out that if you express doubts that Bitcoin can reach $10 million in a few years, you’re a bearish one. It’s not about being down or up. The problem is that in some cases Bitcoin Supreme would have to overcome the world economy and all the capitalization of money in order to reach such numbers. Really? In other words, planet Earth would be a desert. We’d only have power plants, mining, computer networks, and billionaires at Bitcoin. But what about the production of goods and services? Do all the predictions make sense?
Now, using round numbers, the gross domestic product (GDP) of the United States is approximately $20 trillion, that of the European Union is $16 trillion, and that of China is $13 trillion.
The world’s is $73 billion. According to the IMF, in 2020 the world economy contracted by 4.9%. But a growth of 5.4% is expected for next year. We are talking about a growth of 3.9 billion dollars every year assuming that after 2021 we maintain the same rate of growth. Something, by the way, that would be very difficult.
Now we are talking about gold capitalization. In this case, we are talking about 9 billion dollars. The United States, Germany, the IMF, Italy, France, Russia and China are among the most important gold holders. Despite being a commodity with a presence in the periodic table and demand in industry and jewelry, gold is essentially a speculative asset. In other words, it is a non-productive asset. In this sense, gold could fall into the category of „collectible“. In the world of finance, for example, art is also a speculative asset. But art is not fungible. Diamond is a little more fungible. However, it is not as fungible as gold.
Of course, gold is special because governments have gold reserves. For one thing, gold is commonly used as a backing in bond issues. It is no coincidence that many governments do not have custody of their own gold. Gold is usually found in places like London or Switzerland. That’s because it is much easier for a country seeking financing to obtain a swap with gold in a London warehouse than in its own backyard. On the other hand, gold is used as a currency stabilizer in the monetary policy of most countries. Let’s say that a currency X is weakened too much. Then, the government can sell gold to eliminate liquidity. Or it can buy gold to inject liquidity. In other words, it can reorganize its reserves to push through the desired monetary policy.
If the price of gold falls too low, that means that the world’s reserves would be dramatically reduced. That would affect the financing capacity of many countries. It would also affect the value of currencies. For this reason, there is tacit agreement in the world that the price of gold should remain relatively stable. In other words, gold holders take care of their market. It is no coincidence that the IMF is one of the most important gold holders on the planet. Gold is a mechanism of monetary balance. Gold is a highly consolidated network. Governments and banks have a strong interest in maintaining the gold market.
The weakening of the dollar is a state policy. Why?
Of course, when we talk about gold we are talking mainly about the fact that it is a non-productive asset, a transfer of wealth. The pillar of the economy is not gold or the dollar, it is production. According to the CIA, the amount of money in the world is approximately 80 billion dollars. Meanwhile, the market capitalization of the entire S&P 500 is $30 trillion. The S&P 500 accounts for almost 85% of all public companies in the United States. Here we’re talking about companies that produce goods and services.