Should you buy the dip?
Bitcoin, gold, and Economics 101
“[P]eople … regard gold as a safe investment in the sense that they trust it more than assets denominated in currency.”
The Austrian-American economist, Fritz Machlup, wrote that line in Speculations on Gold Speculation, published in the American Economic Review in 1969, while he was at Princeton University.1 It was the Bretton Woods era, when the official gold price still sat at $35 an ounce and the monetary system relied, ultimately, on an institutional promise that the dollar was as good as gold. In that setting Machlup made a simple point: in moments when people become nervous about assets denominated in currency, they reach for the asset that feels less political, less contingent on the next decision by a treasury or a central bank, and less exposed to the next disagreement between governments. They reach for the thing they expect other people to keep accepting.
The temptation is to see this as an observation from a bygone age, a relic of a world of fixed exchange rates. Yet the idea has returned, dressed in new language. Bitcoin, we are told, is digital gold: scarce by design, portable, borderless, and immune to the whims of the state. Sure, that claim has had its moments. But it has also had its setbacks. The present episode, in which gold has held up while Bitcoin has fallen, is one of those tests that forces clarity about what we mean by a reserve asset – and the future of Bitcoin…
