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Despite the Hype, Bitcoin May Never Come Close to Replacing Gold

The unpredictable volatility of Bitcoin and other digital currencies undermines the very idea of what a storage of value should be.

In many cases, investors around the world are shucking the old standbys of commodities and bonds and putting their money into Bitcoin, ethereum and other forms of digital currency. The astounding rise of cryptocurrency – with market capitalization going from $7 billion in January 2016 to now an estimated $220 billion – has created a new asset that sound investors have to consider. It should also be noted, however, that the total implied value of the global gold supply is about $7 trillion.

Nevertheless, as this worldwide cryptocurrency craze permeates the financial world – along with its underlying architecture, blockchain – a resounding question tolls across the mountaintops: Can Bitcoin act as a substitute for gold?

Certainly, the two have obvious similarities – Bitcoin is often even represented as a gold coin. In addition, they both require a form of mining to be uncovered. Each is finite and scarce in its own way, since gold is limited and there will only ever be 21 million Bitcoins in circulation. But, beyond the obvious, both have similar applications as assets that can store value outside the realm of fiat currencies. However, there are some serious concerns about Bitcoin being able to maintain an effective hedge for the long-term.

First, cryptocurrency is highly volatile. Just this week, Bitcoin surged $900 in 60 minutes. Over the past month, it has swung wildly, falling over 30% to as low as $5,620 and then surging upward to finally break the $10,000 threshold. This level of unpredictable volatility undermines the very idea of storing value. Another problem with Bitcoin is the actual money demand for the digital currency. Money demand for Bitcoin can fluctuate unpredictably, and, with such a rigid supply, it can be hard to stabilize the purchasing power of the coin by adding additional supply. Next, there are simply so many new ICOs creating competition and cryptocurrency market saturation. Just think, there are 180 paper currencies in the world as recognized by the United Nations, but an astounding 1,072 different cryptocurrencies. With this many coins, it is impossible to tell which will be sloughed off in a future correction or just simply fade from existence and which will stick around. And Bitcoin is no sure bet to be the last coin standing. The original cryptocurrency has recently been plagued by drama about how to expand its transaction volume. Lastly, Bitcoin and cryptocurrency as a whole are just emerging and have not proven their reliability during recessions and calamities.

On the other hand, gold does not have these problems. The yellow precious metal is an eternal symbol of wealth and an everlasting haven for true value, with no competitors and no alternatives. Civilizations have traded gold since 600 B.C. and the physical commodity has proven its worth as an uncorrelated, tangible asset that is intrinsically valuable. Paper money will blow with the winds of government and financial systems, but gold is durable. Data has shown that, in times of recession, gold demonstrates its mettle by separating itself from other asset classes and stocks. Thus, as the stock market falls, gold awakens and begins to rise, defining itself as the fortress in your portfolio. Another key point which must be taken into account is that the world’s gold supply is starting to contract.

Unprecedented in history, we are entering a turning point in the life of gold: peak supply. Reports from Bloomberg and other outlets have posited the idea that gold supply is declining. An example cited by many is the gold production coming out of South Africa. The country has always been one of the world’s largest producers, but now the tonnage is topping out at 167.1 for 2016; whereas it was 1,000 tons in 1970. It is possible that the earth’s low-hanging fruit has been picked, but as this scenario colors out, one thing is certain: A reduction in supply would lead to significant upward pressure on gold. In the face of shortages and finite resources, companies that discover significant gold deposits will now be more valuable than ever before.

One such company that has seen a windfall of exciting gold discoveries is Winston Gold Corp. (WGC:CNX)(WGMCF) The Canadian junior mining company has multiple properties but has recently seen high-quality findings from its Winston property outside Helena, Montana.

The company’s work inside the “Treasure State” has proven to be promising. At their eponymous 205-acre Winston property, the mining company has used modern technology to extend past shallow depths. The property is in a proven district that has produced 100,000 ounces of gold from only 150,000 tons of ore, averaging 22.8 grams per ton of gold. To this point, this high-grade gold was mined nearly exclusively from the surface to only 400 feet below.

With this in mind, Winston and their leadership team have studied this massive property in its entirety, and, combined with historical data, the company has identified two high-grade veins called the Parallel and Block 93 veins. The Parallel is so-named because it tracks alongside the existing Custer vein about 100 feet to the south. Whether by accident or design, drilling of the Parallel vein confirmed the existence of the Block 93 vein. Besides the previously mentioned veins, Winston also has extensive data on the Custer and Edna veins, along with a fifth vein that is currently unnamed.

Here is an extended look at the numbers from the company’s recent drilling:

  • Hole W77 was drilled to test both the Parallel vein and the Block 93 vein west, which intersected a 6-ft. interval of the Parallel vein at a down-hole depth of 344 ft. that averaged 0.338 oz./ton (11.59 g/t) gold. This intercept increased the strike length of the Parallel vein by about 55 ft. to the west, bringing the total strike length to about 385 ft.
  • In the footwall zone of the Parallel vein, hole W77 intersected a previously unknown vein, averaging 0.124 oz./ton (4.25 g/t) over 7 ft. This included a 2-ft. interval averaging 0.385 oz./ton (13.2 g/t) gold.
  • Hole W77 also intersected three separate mineralized zones in the Block 93 vein system, stretching across 16 ft. of the core from 121 to 137 ft. down the hole. These three zones together averaged 0.214 oz./ton (7.34 g/t) gold over 16 ft. The true width of this zone is estimated at about 6.5 ft. Highlights within this zone included a 1 ft. section averaging 0.568 oz./ton (19.47 g/t) gold.
  • A new vein was discovered in the hanging wall between the Block 93 and Parallel veins at a down-hole depth of 183 ft. It averaged 0.199 oz./ton (6.82 g/t) gold over 1 ft.
  • Hole W75 was drilled to test the northeastern extension of the Parallel vein intersected high-grade gold mineralization in the structure and effectively doubled its strike length from 150 ft. to almost 330 ft. The vertical extent of the vein was also increased from 65 ft. to 277 ft.
  • Hole W75 intersected 1 ft., averaging 1.756 ounces per ton (60.2 g/t) gold within a 4-ft. section of the Parallel vein
  • Hole W75 also intersected a vein at 53 ft. down-hole located just above the workings where holes W74 and W76 were lost. It averaged 0.281 oz./ton (9.63 g/t) gold over 3 ft., including a 1-ft. interval averaging 0.656 oz./ton (22.5 g/t) gold over 1 ft.

Most importantly, Winston Gold is in the midst of trying to secure funding to start a decline that would give access to start a bulk sample, which they believe will show the investment community exactly what kind of haul they have in Montana.

We’ve been saying all along that we think this project could be commercially viable,” CEO Murray Nye told Equities in August. “I’m quite excited about the previous drilling done here and the way that it’s all shaping up. We’ve got a very good mining opportunity ahead of ourselves, and that’s what we’ll be focusing on for sure.”

While many in the investing world are focusing on the popularity of Bitcoin, and surely it has created an interesting new asset class, it cannot compare with the sturdiness of gold. The former has quadrupled since the start of the year, riding a corresponding wave of highs on all three major indexes, prompting many to ponder if Bitcoin is actually a bubble.

So, as peak gold passes into a true supply decline, companies like Winston Gold that are holding properties with viable resources will once again become the solid storehouse that investors turn to in times of crisis.

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