Move over gold, smell the Bitcoin? Here’s what ChatGPT says…

Disclaimer: The article is simply speculative and should not be taken as investment advice.

Let’s call it what it is: 2022 was a dramatic year for crypto. The fall of multiple cryptocurrency exchanges and the industry starting 2023 with a loss of $2 trillion gave rise to what was considered as the worst bear market in a decade.

Fortunately, this story was writing a good chapter at press time. Consider this – Bitcoin’s [BTC] price has risen by 28% since 12 March, touching $30k for the first time since 10 June 2022.

Even so, folks like Ray Dalio remain unimpressed. In fact, the famed investor spoke about the most traditional investment opportunity – Gold – and how crypto can never match up to it.

Dalio summed up his thoughts by saying,

“It’s a very, very poor alternative to gold… Central banks, by the way, own gold, and it’s their third-largest reserve – US dollars, euros, gold, and then yen.”

Driving home his point, Dalio argued,

They can outlaw [Bitcoin]. They can regulate it. Central banks and countries pretty much don’t want it, anyway. So it’s not a good viable alternative… You can have it go down 80%, and if you want to have a little bit [of] it, you can have it. It’s not a big asset. It gets an amount of attention which is way out of proportion to its size.

Not all naysayers on crypto

However, the debate between gold and crypto is not new, especially as Vitalik Buterin voiced his pro-crypto opinions not long ago. He reminded Twitter users why crypto is the future of money, saying,

“Gold is incredibly inconvenient. It’s difficult to use, particularly when transacting with untrusted parties. It doesn’t support safe storage options like multi-sig. At this point, gold has less adoption than crypto, so crypto is the better bet.”

Does Buterin have a point? Do naysayers like Dalio ultimately have no leg to stand on? Let’s delve deeper.

For starters, Buterin called gold “inconvenient” and “difficult to use.” It makes sense because well, who uses gold for everyday transactions? Gold is stored in reserves by central banks in places like the U.S., is bought as a sign of wealth in places like India, but is ultimately traded for cash in both scenarios. Crypto, on the other hand, is slowly moving towards P2P transactions.

Buterin’s last point, which brings up gold’s “less adoption” as compared to crypto, is something that has started playing out already. In fact, by November 2022, the number of crypto-owners hit 402 million as adoption grew at an average of 2.9% monthly.

Conversely, investment demand for gold grew by 10% throughout 2022. These are some interesting numbers for those caught in the crosshairs of this debate.

Based on the above analysis alone, one could argue that crypto-investment will become more important in the future. It’s simple: Anyone can buy crypto, save it, and sell it when the time is right. Crypto is the better bet, as evidenced by the recent successes of Bitcoin and Ethereum [ETH], which are emerging as safe havens for investment.

What does ChatGPT say?

To help prove my point, I went to our AI friends and self-proclaimed experts on everything, ChatGPT. I began my quest for the truth by asking it the most basic question I could think of, which was simply,

“Is crypto a better investment than gold”

Source: ChatGPT

As expected, the classic version of ChatGPT did not give me satisfactory answers, reiterating that individual preferences depend on their risk appetite, investment conditions, and everything else taught in investing 101.

However, DAN gave me an answer to ponder about.

Source: ChatGPT

“Explosive growth,” “clear winner,” ‘massive returns.”

Playing the Devil’s Advocate, one could argue that these are just hyperbole statements by an AI that does not know better (yet). However, as I prodded DAN further, the AI admitted,

Source: ChatGPT

The last point was particularly interesting, as we can see this play out in real life too.

For instance, according to a report by Bankrate, towards the start of 2023, millennials, with 57%, led the list of crypto-investors. Gen-Z followed not far behind, with 13% investors. Gen-X and Baby Boomers rounded off the list, with 20% and 10%, respectively.

For now, maybe gold remains the top investment choice, but the tides are changing. This, despite there being not many cryptos that will be a safe choice, apart from a select few. Moreover, as technology develops, AI-enabled cryptos will see an increase too. And, maybe it’s anyone’s guess as to where this innovation will take the industry.

Will 2023 be THE year for Bitcoin [BTC] despite the U.S huffing and puffing?

Q1 of 2023 was Bitcoin’s [BTC] time to shine. The king coin has not had a favorable run in the recent past. Notably, in 2022, Bitcoin’s price fell by 64.02% from its December 2021 prices. Its losses were compounded throughout the year, with Terra’s [LUNA] crash and FTX‘s collapse leaving BTC in the middle of a dreadful crypto-winter.

In fact, Bitcoin hit a two-year low of $15,480 in November 2022, a fall that was made worse by macroeconomic factors. Similarly, its March 2023 gains were largely in part caused by the government’s assurance that depositors would have access to all their funds post Silicon Valley Bank‘s collapse, thereby boosting investor confidence.

Joel Kruger, market strategist at LMAX Group, acknowledged Bitcoin’s 2023 growth as a positive sign, saying,

“The market has done a good job of pricing out most of the downside from the 2022 fallout and has been looking to take advantage of discounted prices and positive news around ongoing institutional adoption.”

However, the possibility of a setback due to macroeconomic factors remains as rate hikes, Federal Reserve decisions, and the United States’ reliance on its dollar stays prevalent. Even so, Kruger suggests that investors should remain bullish on Bitcoin. Especially as,

“Short-term setbacks are nothing more than compelling opportunities to build long-term exposure to Bitcoin. Investors will likely favor a deflationary, limited-supply, fully decentralized asset that’s been built to appreciate in value over time.”

As we step into Q2 of 2023, bullish sentiments may just prevail, especially with BTC trading at $28,293.31 at press time. Also, it’s worth considering this – Bitcoin’s 3-day MVRV ratio, at the time of writing, underlined the possibility of a sustained northbound trend.

Source: TradingView

Crypto’s rise and macroeconomic factors

2022 was undoubtedly crypto’s scariest year, with Terra and FTX crashing in May and November 2022, respectively. This was the perfect time for naysayers to emerge, who proclaimed that the end of crypto was near. These fears caused the industry to tank, pulling it down to a position it has struggled to get out of even at the time of writing.

However, the music changed in 2023 as there was an increased focus towards ensuring that those events do not take place again. But for that, the current crypto-structure would have to undergo an upheaval. This resulted in calls for increased accountability. Famously, the Chairman of the U.S. Securities and Exchange Commission Gary Gensler, said,

“This asset class is rife with fraud, scams, and abuse in certain applications.”

The SEC, in an attempt to crack down on unregulated securities, filed a case against Ripple Labs] in 2020, alleging that the latter was partaking in the sale of unregistered securities. The outcome of this lawsuit will set the tone for the entire crypto-space. Considering the United States’ status as a superpower, it will affect crypto globally as well.

If the SEC does win this case, most cryptocurrencies would have to fall under a “security” of some kind, marking it under a regulatory body’s umbrella.

However, what about cryptos like Bitcoin, whose owner is unknown? That is a question that remains unanswered as of yet.

Regulations across countries

The U.S is not the only country looking to regulate cryptocurrencies through the SEC, as other countries have also started looking to govern it through CBDCs. In 2023, 114 countries had started exploring the use case of CBDCs. 20 countries reached pilot or launch phases, including Australia, Thailand, India, and Russia. Jamaica is the latest country to launch its CBDC, titled JAM-DEX.

However, the most worrying part of it all is that the U.S continues to lag. The frameworks it has introduced, like the Biden Regulation, have been few and far in between. Despite these baby steps, no one has made any concrete moves yet. This is a worrying sign not just for U.S. crypto-investors, but for most countries as well.

The U.S, considering its status as a superpower, will lead the definition of what a cryptocurrency is. In fact, part of the reason why global adoption has not accelerated the way it should have is because of the world’s continued reliance on USD as a reserve currency.

Consider this – If the U.S. releases a dollar-based CBDC, it would significantly change the way countries trade with each other. International trade would become de-polarized, leading to increased liquidity. The debate over cryptocurrencies would largely cease, as most investors would prefer a government-backed and stable investment option with low volatility.

What’s causing the delay?

However, for some reason, U.S. lawmakers are unable to agree on uniform regulation for handling cryptocurrencies. This has, in a nutshell, fueled delayed adoption.

For example, SEC Chair Gary Gensler, a public advocate for crypto-regulations, has suggested,

“For those who want to encourage innovations in crypto, I’d like to note that financial innovations throughout history don’t long thrive outside of our public policy frameworks.”

As American lawmakers remain at odds over crypto-regulations, it begs the question – Will this back and forth affect America’s stance as a global financial hub? There is no doubt that recent state laws (like the recent Arkansas bill) have given some clarity as to states’ views on crypto. However, the arrest of Sam Bankman-Fried, a major crypto-player in Washington, has discouraged lawmakers from coming right out and voicing their opinions on the industry. This, much to the detriment of all those waiting for regulatory clarity from the country.

However, this wavering adoption is not a sign of discouragement. For example, this 23-year-old article that referred to the Internet as a “passing fad” and a “poor substitute” for the real world. Now, fast forward to 2023, and people are buying houses on DEXs as RWAs.

Bitcoin’s rise is testimony to investors’ confidence that the king coin will remain prevalent in the long term, and its 2023 gains are just the starting point. Regardless of what the macroeconomic events are, BTC will likely remain true to its “king coin” status, even though it may waver sometimes.

Assessing how RWAs’ $16 trillion prediction can come true

“Killer use-case”

If you’re a part of the crypto-world, chances are you’ve heard this phrase repeatedly over the last 48 hours. Citi Bank’s latest report titled “Money, Tokens and Games” offers a compelling look at what the future of crypto holds.

The report believes that theoretically, one can tokenize any RWA. But, what does it mean? In a nutshell, tokens are DeFi – A class apart from financial assets of fiat currency. Investors can choose to monetize their RWAs on the blockchain as their asset.

The tokenization of an RWA can be akin to the digital representation of a physical asset on the blockchain. This token can be broken down into multiple fragments and traded on any exchange. Think of it as investors buying individual LEGO pieces, if you will.

Is it RWAs’ time in the spotlight?

However, Citi’s report is not the first mention of RWAs in recent times. The topic gained credence over the past week when Twitter account @thedefiedge predicted that RWAs could reach a valuation of $16 trillion by 2030.

According to Edgy, the catalysts spurring the mainstream adoption of RWAs are –

• Amazon’s new NFTs are rumoured to be tied to RWAs

• Goldman Sachs launched GS Dap to tokenize traditional assets

• Monetary Authority of Singapore is testing asset tokenization via Project Guardian

• Siemens issues a €60m bond on Polygon

Let’s take a look at two examples that have already made headwinds. The month of March began with the news that Amazon had started looking into RWA NFTs, a move that would make digital collectibles available to all. Simply log on to the app and buy your favorite NFT with your credit card without having to set up a MetaMask [MASK] wallet. Sounds like a breeze!

In doing so, the fears of the blockchain being “unknown territory” would also be alleviated. As Edgy put it,

“Imagine getting stable yields in DeFi without being affected by crypto’s volatility.”

Another example is that of Homebase. According to @HomebaseDAO, the firm sold its first tokenized home on the Solana [SOL] blockchain. An initiative that “started out as an experiment” became wildly successful, with the RWA being sold out in two weeks. What’s the selling point, you ask? Well, every owner of the RWA will get rent via USD Coin [USDC] straight into their wallets.

However, it’s not just firms tapping into the potential that RWA offers. On the crypto front, the biggest DeFi protocol – MakerDAO [DAI] – has also opened its doors to RWAs by passing a proposal to increase its US Treasury investments. Through this investment, Maker would use $750 million USDC to purchase US Treasury bonds. This would help diversify the liquid assets backing DAI.

Are Real World Assets the natural way for NFTs?

As the initial test run for Real World assets has been opened with eager arms, it’s no surprise as to why more firms are looking to tap into this market. The Non-fungible Token [NFT] marketplace has not fared well in recent times, which is not surprising, especially since the Terra [LUNA] crash wreaked havoc on the entire crypto-market.

However, things have been looking up for NFTs. According to information gleaned from DappRadar, total NFT sales volumes reached $25.1 billion in 2021. However, it fell slightly in 2022 to $24.7 billion as NFTs became more niche and mainstream hype faded.

In 2023 Q1 alone, NFT trading volume rose by a staggering 137% and sat at $4.7 billion towards the end of March, signifying renewed interest in these tokens.

Source: DappRadar

However, one cannot discount the fact that with the introduction of RWAs, this number has the potential to jump higher. But, this is not to say that this widespread adoption is not without its risks. First, let us talk about the elephant in the room. Most RWA trading is centralized, with USDC being the currency of choice for most. Since the stablecoin’s de-pegging, there is still an element of FUD around it. Moreover, on-chain assets are always at risk of exploits.

While NFTs could, in the future, adopt an RWA approach, it would be imprudent to assume that RWAs will take over NFTs entirely. The latter have carved out their own niche space in the DeFi sector. And, even though there will be significant overlap, as evidenced by Homebase, it is best for the crypto-market if the two sectors grow at their own pace, simultaneously.

As DappRadar puts it –

“The focus needs to be on the long-term growth and sustainability of the ecosystem, not just short-term gains.”