The Bitcoin bears have reemerged as bitcoin tumbles 45% 📉 from its all time high price, 68K in early November 2021 to $39K in early February of 2022. Gold has risen 1% in this same short time period.
Composed by Emanuele Marabella, Building Engineer, $BTC holder, $MSTR and $PLTR shareholder.
Published on February 2nd, 2022
Video summary here:
The gold bugs continue to boast gold's historical existence and real world application as the case for its superiority compared to the digital asset know as bitcoin. As the US national debt reaches $30 trillion and wages are lagging inflation which is at a 40 year high, the debate rages on about which asset class is a greater hedge against the devaluation of government controlled fiat currencies in turbulent economic markets. Ultimately, time will reveal the true Store of Value Champion, in the mean time, here is my take:
Despite the continual battle between gold bugs and bitcoin bulls, these two groups do share common views when it comes to protecting wealth against government controlled currency and the risks of inflation and potential hyperinflation. The US recently confirmed a consumer price inflation rate of 7% from December 2020 to December 2021.
The debate arises when the question of how to correctly apply the necessary hedge is asked, and therein lies the eternal battle.
The 10 year Charts
Gold's increase in value during the last decade has grown poorly when compared to inflation. Over the last 2 years gold has increased in value by only 17% compared to bitcoin's 300% increase. Furthermore, gold has only increased 9% over the last 10 years compared to bitcoin's 8,000% increase.
Gold price in USD/oz
BTC price in USD/coin :
Gold V Bitcoin
Stansberry Research held a lively debate in early 2021 between entrepreneur Frank Giustra and Microstrategy ($MSTR) CEO, Michael Saylor. This was a clash of billionaires.
The clip below shows Frank Giustra argue the reasoning for holding gold in a portfolio. He states that "Gold is not designed to moonshot through the roof like some tech darling", preaching that gold is a safe haven asset and serves as a protection against the hyperinflation of a currency. The inclusion of gold in a portfolio is not meant to exponentially increase the value over time but rather protect a portfolio in a worst case scenario.
Michael Saylor claims that gold is "a dead rock" and has major issues with storing, securing, auditing, and transporting gold. Saylor personally owns 17,732 Bitcoin (BTC) and his publicly traded company ($MSTR) owns more than 125,051 Bitcoin for a combined equivalent value of $5.5 billion. Bitcoin bulls claim that BTC's finite 21 million coin supply is superior in comparison to gold's non scarce characteristics.
MicroStrategy holds more than 2 billion dollars in long term debt with an 82% Long Term Debt to Total Capital ratio. This statistic depicts the financial leverage of a firm and is calculated by dividing long-term debt by total available capital (long-term debt, preferred stock, and common stock). Moreover, MicroStrategy has a debt to equity ratio of 485%. This statistic depicts a company's financial leverage and is calculated by dividing a company’s total liabilities by its shareholder equity. It is a measure of the degree to which a company is financing its operations through debt versus wholly owned funds.
Ark Invest's perspective
Ark Invest's September 2020 white-paper describes a use case for Bitcoin As Digital Gold:
Economic history suggests that an asset accrues value as the demand for it increases relative to the supply. Demand is a function of an asset’s ability to serve the three roles of money: store of value, medium of exchange, and unit of account. While gold has maintained its status as a store of value, its limitations to serve as a medium of exchange and unit of account began to surface in the 20th century. Supporters often refer to bitcoin as digital gold because it improves upon many of physical gold’s characteristics.
Ark Invest's newest research, presented in their 2022 Big Idea Summit shows how they anticipate the price of bitcoin to reach $1.36 million by 2030 with a $28.5 trillion market cap. According to their research, 20% of that total value ($5.5 trillion) will be transferred from 50% of gold's total market capitalization.
Palantir Technologies ($PLTR) a data-analytics, software company with a $30 billion dollar market cap and over $2 billion in cash has made their acquisition of gold bars public in their August 12th 10-Q filling:
"During August 2021, the Company purchased $50.7 million in 100-ounce gold bars. Such purchase will initially be kept in a secure third-party facility located in the northeastern United States and the Company is able to take physical possession of the gold bars stored at the facility at any time with reasonable notice."
This investments represents 2% of their cash amount. Palantir COO stated this about the purchase: “you have to be prepared for a future with more black swan events."
Note: Palantir accepts payment from their customers in Bitcoin. Ark Invest holds approximately 1 billion of $PLTR stock.
Bill Miller's perspective
Legendary investor Bill Miller explains why 50% of his 9 figure net worth is/was in bitcoin when bitcoin was at its peak. His response to acquiring bitcoin was to have an insurance policy "incase the government seizes all the gold like they did in 1933 or incase Western Union stops remittances to certain countries.
Eternal Debate or Eternal Confusion?
It seems that the meaning of a Store of Value varies for each investor and this is the reasoning that the Bitcoin V Gold debate seems to have no definite conclusion. In my view, these two assets serve different purposes and the title Store of Value gets lost in the mix as they are not direct competitors.
At the end of the video above, Bill Miller ends up praising bitcoin's value growth as his final reason that he decided to purchase bitcoin over gold. This signals that Bill isn't interested in preserving his $500 million portfolio as much as he is interested in exponentially growing his portfolio value while protecting himself from any currency issues related to government mismanagement.
At this current moment in history, due to its price volatility, the case can be made that bitcoin is not a store of value in the traditional sense. MicroStrategy's decision to take on large debt to continually purchase bitcoin strengthens this argument. Bitcoin bulls are seeking and anticipating upside asymmetric gains throughout all market cycles and often preach aggressive investing strategies. Contrarily, it seems that gold bugs are interested in preserving their wealth through time rather than growing it. Peter Schiff, a prominent gold bug and bitcoin bear, suggests a gold allocation of 5-10% in a portfolio.
Max Keiser gives his thoughts on this issue during his latest interview with Stansberry Research:
A New Contender Arises
The size of each investor's portfolio plays an instrumental role in their investing decisions. It seems reasonable that a a multimillion dollar portfolio would have an interest in allocating 5% of their portfolio in gold as a hedge, similar to the Palantir example above. However, if an investor is continually searching a maximum increase in their portfolio value and has little fear of currency devaluation, gold does not seem to fulfil that objective.
Money is a technology by which we transport value over time and space - Pierre Poilievre
Gold bars can transport value well through time but poorly through space. As we move to an ever growing digital society, the need to own and store gold bars seems cumbersome and outdated. In the case where an investor is wary of bitcoin's risk/reward profile, yet seeking a portfolio hedge while simultaneously increasing their portfolio value, investments in luxury timepieces can be considered. Luxury timepieces have proven to perform well as an asset while increasing in value through time without the burden of storage and security that gold bars entail.
Luxury timepieces made of gold and other precious metals are utilitarian and can practically be transported over time and space. A well crafted timepiece can be handed down by families through generations.
There is a certain peace of mind that comes with constantly having your precious metal investment in your possession, wrapped on your wrist rather than stored in a shoe box at home or in a vault of a custodian (which involves fees). The polyvalent characteristics of a luxury timepiece including its utility and style allow this to be an asset class worth consideration.
The graphs below display the value increase over a two year span of luxury timepieces made of gold (white, rose, yellow). The Rolex Daytona, the Royal Oak Chronograph by Audemars Piguet and the Nautilus by Philippe Patek are show below.