The Case for BITCOIN $100,000 – Part Four

We don’t know about you but in our entire educational history, we never really received any teachings about the history or value of gold. 

Now the fact that we didn’t learn anything about it in high school is not that surprising. Little is taught about finance (or anything financial) in our primary education system which is a great tragedy. 

For college, however, I attended the Wharton School at the University of Pennsylvania. Now obviously I am biased, but Wharton is widely considered one of the (if not THE) best business school programs out there. 

In particular, it specializes in the study of finance. Alumni include Peter Lynch, Donald Trump, Elon Musk and Warren Buffett! 

Classmates of mine from the early 1990s currently manage over $1 trillion of assets. Real number… 

At Wharton, I was a decent student.  After adjusting in my first couple of years (and to fraternity life!), across my last few years had 4.0 GPA and graduated Cum Laude. I actually loved what we were learning so I paid a lot of attention. 

In all that time at Wharton, do you know how many times I remember them discussing “gold”? NOT ONCE. 

Now maybe they did in one of my many finance courses and I am certain it was part of some advanced portfolio allocation analysis. 

In terms of an actual conversation about why gold was valuable, how it was used, the history of gold… nothing. 

Now, again – it has been three decades since I graduated but the fact that not a single memory comes back to me about teaching about “gold” says a lot. 

As part of this week’s series on bitcoin, we did quite a bit of research about gold. Some of what we learned surprised us… 

One interesting aspect about gold is that while we think of it as always having value as currency or a “store of value”, that aspect is likely only 3500 years old. 

Gold had been around for thousands of years prior for use in jewelry, but it wasn’t until the ancient Egyptians (using the gold from Nubia) began to use it as a medium of exchange. The initial medium was a coin called a “shekel” which was a combination of both gold (2/3^rd) and silver (1/3^rd). 

The use of gold as a part of currency would continue with many cultures including the Romans and most countries across the Western world. It also eventually moved over to other parts of the world across several centuries…. 

Another interesting note, though, is that almost none of these countries used gold as their primary currency. It was too rare and difficult to work with so most of these countries relied on both silver and bronze. 

Gold certainly played a role, but by no means the primary role in early currencies and as a “store of a value”. 

This began to change with the United Kingdom. As the country ascended to a period of global dominance, they instituted a system where gold was used as a medium of “constant” value of exchange between countries all over the world. 

As global trade began to expand, then it became necessary to have this medium of exchange. Interestingly many countries also kept large stores of silver as a proxy for gold. 

Up until 1850 only Britain and some of its colonies were on the gold standard.  The other used silver and/or a mix of metals. The “gold rush” in the United States, though, lead to a much more dramatic uptake in the use of a gold standard. 

Beginning in the late 1800s, most companies began moving to some sort of gold standard. It started in Europe and then expanded to Asia by the early 1900s. That was only about a century ago. 

The reality is that it was really only around a seventy-five year period where gold ascended to this status as the universal global “store of value” and use as currency. 

What ended it? War. 

Once World War I began and sent economic ramifications across the world, the governments lost some of their control over their economies. By holding to the gold standard, they were unable to help their economies as much as they could prior. 

Legally many countries maintained a gold standard but the reality is that they were departing substantially from really adhering to it. The Great Depression further put a dent into the adherence of this idea. 

This was cemented when President Franklin D. Roosevelt officially departed from the gold standard upon taking office in March 1933. This allowed the government to devalue the dollar against gold and begin to attempt to stimulate the economy. 

After this there were other systems including the Bretton Woods international monetary agreement of 1944 that maintained some role for gold in the currency system. At this point, though, the US dollar became more important than gold as a medium of international exchange. 

These ties continued until roughly 1976 when the US officially changed the definition of the US dollar to remove the references to gold from the standards. 

Do you own physical gold as part of your investment portfolio or as a hedge against inflation? Let us know in the comment section online (scroll to the bottom of the post).

Now – this is important for us to say – we know that there are many of our readers out there that know 100 times more about the history of gold. We have presented a VERY abridged version of it here and its role in both history and the economy. 

There also are many theories about what role gold should play in the economy now, and in the future. We are not weighing in on any of those ideas in this note. 

Our point is the following – gold has had “value” for about 3500 years, was really adopted as currency about one hundred and fifty years ago and that period lasted roughly one hundred years. 

At which point it was replaced by the US dollar which has now been in a dominant position for the last seventy five years. 

Again, there are major debates about whether that will last and what happens next. 

Our major point – from our learnings about gold (and the US dollar) – is that “store of value” can be more transient and fluid than we think… 

We mention this not because we think that either gold or the US dollar is likely to lose a huge amount of value anytime soon but rather because we think it helps make the case for why Bitcoin could GAIN it. 

If gold only held the position for roughly a century and the US dollar for seventy five years, why couldn’t something NEW ascend for the next fifty years in the digital age? 

In tomorrow’s final note on “Bitcoin $100,000” we will share an example of how this can happen.