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

These are fraught times for the cryptocurrency and blockchain sector, so it isn’t surprising that industry proponents might seize upon any promising news to help charge flagging markets. A Reuters report out of Uganda last week about a massive gold ore discovery supplied just this kind of fuel.

What does the state of gold mining in Africa have to do with the price of global Bitcoin (BTC)? Quite a bit, potentially.

Bitcoin has periodically laid claim to being 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. Gold, of course, is the store of value par excellence, with a limited supply and a solid track record that goes back millennia.

But, if Uganda is sitting on 31 million metric tons of gold ore, as the government declared, might not that substantially boost the world’s gold supply? That in turn could lower the price of gold — and make it a less secure “store of value” generally. Gold’s loss could be the cryptocurrency’s gain.

Some drew encouragement from this notion. Microstrategies CEO Michael Saylor, for instance, posted a video on Twitter about the Ugandan discovery of “huge gold deposits” which might net 320,158 metric tons of refined gold “valued at $12.8 trillion.” As Saylor noted on June 17: “#Gold is plentiful. #Bitcoin is scarce,” further telling CNBC:

“Every commodity in the world has looked good in a hyperinflationary environment, but the dirty secret is you can make more oil, you can make more silver, you can make more gold […] Bitcoin’s the only thing that looks like a commodity that is scarce and capped.”

But, perhaps there is less here than meets the eye. The 320,158 metric tons of refined gold that the Ugandan mining ministry spokesman said could be produced from the new deposits in the country’s northeastern corner would far exceed the 200,000 metric tons in above-ground gold that exist in the entire world today. One gold mining trade publication went so far as to suggest the Ugandan government may have been confusing metric tons with ounces in its projections. 

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The World Gold Council was asked for comment about the Uganda discovery and the plausibility of its numbers. The Council doesn’t typically comment on media reports of gold discoveries, a spokesperson told Cointelgraph, but added:

“In the absence of formal ore reserve/resource declarations, we would not expect these ‘discoveries’ to contribute materially to mine supply in the foreseeable future.”

But, to the larger issue, Saylor may have a point. The fact is that more gold can always be mined, whether in Uganda or somewhere else, especially with advances in surveying and mining technologies, including aerial exploration. And, if so, doesn’t this make Bitcoin, with its strict 21 million BTC limit, look non-inflationary by comparison — and a potentially better store of value?

Garrick Hileman, head of research at Blockchain.com, told Cointelegraph:

“The Ugandan find underscores why the approximately 200 million holders of Bitcoin believe that ‘digital gold’ — Bitcoin — is superior to actual gold in terms of its scarcity and reliability as a store of value in the decades to come.”

As was the case with other major gold discoveries in history, like the 19th century South African gold rush, the introduction of this much new gold — or even just growing awareness of the Ugandan find — “could have significant negative price implications for gold over the coming years,” Hileman said. 

Not all agree with this assessment, however. “People label Bitcoin as ‘digital gold’ because it was considered a hedging asset, especially against the stock market. This has not been true at least for the last three years,” Eshwar Venugopal, assistant professor in the department of finance at the University of Central Florida, told Cointelegraph….