Uganda’s gold discovery: What it could mean for crypto

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These are frightening times for the cryptocurrency and blockchain sector, so it should come as no surprise that industry proponents may seize any promising news to help charge the markets. A Reuters report from Uganda last week about a massive gold ore discovery supplied such fuel.

What does the state of gold mining in Africa have to do with the global bitcoin (BTC) price? To a large extent, potentially.

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Bitcoin has over time claimed to be digital gold largely on the strength of its strict 21 million supply limit, which makes it non-inflationary and a good store of value – in theory. Of course, gold is a store of value. par excellenceWith a limited supply and a solid track record that goes back centuries.

But, if Uganda is sitting on 31 million metric tons of gold ore, as the government has declared, could that not significantly increase the world’s supply of gold? This in turn can drive down the price of gold – and make it a generally less secure “store of value”. The disadvantage of gold can be the advantage of cryptocurrency.

Some drew encouragement from this notion. For example, Michael Saylor, CEO of MicroStrategies, deployment of A video on Twitter about the discovery of “huge gold reserves” in Uganda, which could be pure 320,158 metric tons of refined gold “worth $12.8 trillion.” as a sailor noted On June 17: “#Gold is plentiful. #Bitcoin is rare,” further Say CNBC:

“Everything in the world is looking good in a hyperinflationary environment, but the dirty secret is that you can make more oil, you can make more silver, you can make more gold.” […] Bitcoin is the only commodity that looks like a rare and limited commodity.”

But, there’s probably less than meets the eye here. A spokesman for Uganda’s Ministry of Mines said 320,158 metric tons of refined gold could be produced from the new deposits in the country’s northeast corner, which would exceed the 200,000 metric tons of above-ground gold existing in the entire world today. A gold mining trade publication even stated that the Ugandan government is confusing the metric ton with the ounce in its estimates.

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Comment was sought from the World Gold Council regarding the possibility of Uganda’s discovery and its numbers. The council does not usually comment on media reports of gold discoveries, a spokesperson told Cointelegraph, but added:

“In the absence of formal ore reserves/resource announcements, we would not expect these ‘discoveries’ to contribute significantly to mine supplies in the near future.”

But, on the larger issue, Sailor may have a point. The fact is that more gold can always be mined, whether in Uganda or elsewhere, especially with advances in surveying and mining technologies, including aerial exploration. And, if so, doesn’t that make bitcoin comparatively non-inflation with its strict 21 million BTC limit – and a potentially better store of value?

Garrick Hillman, Head of Research at Blockchain.com told Cointelegraph:

“Uganda underscores why the nearly 200 million holders of bitcoin believe that ‘digital gold’ – bitcoin – is superior to real gold in terms of its scarcity and reliability as a store of value for decades to come.”

As was the case with other major gold discoveries in history, such as the 19th-century South African gold rush, the introduction of this new gold – or even the growing awareness of the Ugandan discovery –” There could be significant negative price implications for gold in the coming years,” Hillman said.

However, not everyone agrees with this assessment. “People label bitcoin as ‘digital gold’ because it was considered a hedging asset, especially against the stock market. This has not been true for at least the last three years,” said an assistant professor in the finance department at the University of Central Florida. Ishwar Venugopal told Cointelegraph.

Increased participation from institutional investors means that BTC is now more correlated with riskier assets such as equities, whereas a store-of-value instrument should be uncorrelated to the stock market. Added Venugopal:

“When institutional investors enter such markets, their normal trading stop-loss limits apply and the assets in their portfolio and by extension the markets are positively correlated with each other. is bought and sold like any other risky asset, diluting the ‘digital gold’ tag given to it.”

In fact, “it is clear that most investors do not yet see bitcoin as digital gold,” Ferdinando Ametrano, founder and CEO of CheckSig and the Digital Gold Institute, told Cointelegraph.

Rwenzori Mountains in Uganda.

Meanwhile, bitcoin is not governed by any entity or any third party and is therefore subject to price fluctuations, depending on market prices, Vijay Iyer, vice president of corporate development and international at Luno, told Cointelegraph. . This means that it will probably have to go through a significant maturity before it becomes “digital gold”. As Iyer further explained:

“Any new monetary asset goes through a process of monetization through which it is more widely regarded as a store of value as the first step. This process may take another 5-10 years. Gold is in thousands. has existed for years. So, while bitcoin has all the qualities to potentially replace gold, it may still take some time.”

Iyer said the bitcoin network has been around for a little over 10 years and market penetration globally is still less than 1% – although others believe the global adoption rate is higher. In any event, “Bitcoin penetration needs to get higher as a first step.”

Are the numbers plausible?

As mentioned, the numbers given by the Ministry of Mines of Uganda raised some doubts. Generally speaking, gold has survived as a store of value for millennia because it is durable, rare, and hard to mine. It takes a lot of gold ore to produce one gram of refined gold.

Typically, a high quality underground gold mine will yield 8 to 10 grams of refined gold per metric ton of gold ore, according to the World Gold Council, while a modest quality mine yields 4 to 6 grams per metric ton. If one settles on an average of 7 grams of refined gold per metric ton of gold ore, this means that the Ugandan mines would generate about 217 metric tons of refined gold, a far cry from the 320,158 metric tons of refined gold that Solomons produced. Muyta, spokesman for Uganda’s Ministry of Energy and Mineral Development, told Reuters the country’s new discovery could be produced. The addition of 217 metric tons would increase the world’s reserves of the “above” refined gold by only a tenth of a percent.

All this has only an indirect effect on the bitcoin “digital gold” question, which Venugopal, among others, admits is a difficult one. As with fiat currencies, “the value of bitcoin comes from the adoption and trust of users in the system,” he said. Before bitcoin can be a store of value, it requires a larger user base than fiat currency, in his view, adding:

“I see bitcoin becoming a risk asset, but not as a universal store of value because it is volatile, highly inefficient to mint and challenges sovereignty.”

In fact, Venugopal sees bitcoin as “an experiment to show what is possible and to spur innovation.” It has accomplished this, but he expects a more “efficient” cryptocurrency to eventually emerge and replace it, or perhaps a central bank digital currency.

Iyer agrees that BTC’s recent price volatility hasn’t brought it any closer to achieving “digital gold” status. “Bitcoin has never existed under the conditions we are currently witnessing and so it is certainly a test for the asset class as a whole.”

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Elsewhere, Hillman is more optimistic. Technically, bitcoin offers more than just a commodity like gold as an SoV can deliver anytime in the long run. “Algorithmically deterministic supply programs such as bitcoin hold a large predictive edge over gold.” and predictability is key to controlling exchange rate fluctuations, which must be subdued “for the few” to grow into real ‘money’ from serving as a “store of value”, Hillman said.

And, while relatively few people today view bitcoin as a store of value, things don’t need to stay that way. “When the dot-com bubble burst, Amazon lost 90% of its value because most investors didn’t understand how widespread e-commerce would become,” commented Ametrano. He cited economist Paul Krugman’s 1998 prediction that blockchain technology could be appreciated as much today that the Internet would prove less relevant than a fax machine.

Sometimes intelligent people just don’t know.