Will Cryptocurrencies Eventually Surpass Gold as a Reserve Currency?

For as long as can be remembered, gold has been the world’s reserve currency. Although fiat currencies are now used in place of gold bullion, investors and governments still look to gold as a reliable alternative, especially in times of global stress. With gold peaking at just under $2,000 per ounce, and from all indications, there is room to raise more. It may be the chance that Bitcoin and other cryptocurrencies have to enter the picture as another option.

A week ago (August 11), gold dropped, the largest one-day drop in value in seven years. Silver prices responded by sharply reversing its trend, the worst decline in the metal since 2008. In the Monday-Tuesday period, gold fell by 4.7 percent, bringing the price down from over $2,000 to pennies over $1,932. The drop is significant, but it is not the only issue affecting it.

The many transactions that took place a week ago happened so quickly, and so frequently, that transfers of the metal could not keep pace. It is not a problem transferring tokens representing gold from one place to another. What is a problem is moving actual gold reserves; it poses a real challenge. In the face of issues of this nature, the solution may lie in cryptocurrencies.

Is Crypto as Volatile as Gold?

Cryptocurrencies and gold share several similarities. The similarities are most apparent in how they compare to fiat currencies. Gold and crypto lack the volatility of fiat currencies, the reason being their limited supply. Gold may not be sustainable in modern markets. However, Bitcoin and other cryptocurrencies were born in a different age, the age of the internet.

Cryptocurrency payments are made using blockchain technology. As a result, speed is no longer an issue. Some cryptocurrencies have measures in place that defend their value against inflationary pressures. The price of Bitcoin stays more stable due to halving. However, crypto does have an issue that gold does not, and that is, volatility.

Crypto markets are considerably smaller than traditional markets. As a result, small movements in the price have a significant effect. With the crypto market being so small compared to other markets, the slightest variation in demand has a noticeable impact on its value. Perhaps the way to get the best of both worlds is to have a gold-backed crypto.

With gold-backed crypto, such as Tether Gold, tokens do not represent themselves. They represent a specific amount of gold. Golds value anchors these cryptos, ensuring they are less volatile, while at the same time continue to offer the same speed and security of the blockchain. As the value of gold fluctuates, so will these cryptos.

Cryptocurrencies Are Gaining in Legitimacy

The perceived legitimacy of cryptocurrency is perhaps the most significant barrier to be hurdled prior to it becoming an accepted reserve currency. Crypto is relatively new, the public have yet to reach a point where they can trust crypto, but things are changing. More noteworthy individuals, organizations, and even sovereign nations are starting to become involved in crypto and blockchain.

Large financial firms, such as Goldman Sachs and the Bank of America, are involved in blockchain technology. Although these institutions may not yet be using crypto, they accept the underlying technology, a step that brings them closer to cryptocurrency.

Bitcoin and other cryptocurrencies have a way to go yet before they are accepted as a reserve currency. Governments and individuals continue to distrust it. Despite this, the events caused by the current health crisis have been positive. As concern mounts on the decreasing value of fiat currencies and the wild fluctuations in the price of precious metals, crypto presents an attractive alternative.