A Return to Sound Money is the Major Threat to Bitcoin, Says Peter Schiff
During his most recent appearance on Kitco, Max Keiser suggested that if the Chinese national cryptocurrency should be backed by gold, then this would be a massive blow against the USD and very bullish for Bitcoin. The well-known gold supporter Peter Schiff on the contrary claims that if this were to happen, Bitcoin would be in real danger.
Bitcoin is a Superior Currency
A lot of the details regarding China’s cryptocurrency have not been divulged yet, but according to well-known Bitcoin investor Max Keiser, the cryptocurrency that China’s rolling out will be backed by gold. His deduction comes mainly from the fact that China has added more than 100 tons of gold to its reserves since it resumed buying in December 2018, a rather strange event considering that every economy is based on fiat currencies.
[Image Source: Bloomberg]
Keiser added that this scenario is terribly dangerous for the U.S. dollar and could undermine its supremacy as the reference currency. Things are inverse for Bitcoin instead because, according to Keiser, Bitcoin would represent a superior form of currency to gold and the dollar.
“Both fiat money and gold are inferior to bitcoin for one very simple reason, that with a bitcoin transaction, it is also simultaneously the settlement. You don’t have that with fiat, you don’t have that with gold,”
Peter Schiff Disagrees
The CEO of Euro Pacific Capital, Peter Schiff responded to comments made by the bitcoin bull by saying that if China is about to launch a cryptocurrency backed by gold, this would be bullish for gold and bearish for Bitcoin.
As we can see from the tweet, Peter believes that Bitcoin is backed by nothing and its value it’s determined exclusively from the fact that someone else wants to buy Bitcoins at the same or at a higher price. While these comments demonstrate Peter’s lack of knowledge about the economic incentives that support the Bitcoin infrastructure, he does raise a point.
If China’s Digital Currency Electronic Payment System (DCEP) would be backed by gold, this would be extremely bullish for the precious metal. Whilst most discussion of how Bitcoin could fail focus on technical attacks, a far more promising way to kill Bitcoin would be to undermine the economic incentive to use it.
The demand for Bitcoin is driven by individuals that want to carry out transactions that bypass political controls and seek a form of currency which is inflation-resistant. If the banking system will start to readapt a monetary system similar to the gold standard, the demand for Bitcoin might subside.
However, this fear should not occur with Chinese cryptocurrency as the DCEP will be partially centralized meaning that all transactions will be visible to the PBoC, giving the government absolute control over people’s financial activities.