With war drums beating, it’s a good time to compare Bitcoin to gold.
Since the year started, both are rising. Bitcoin is up from about $6,900 to just over $8,300. Gold is up from $1,520 per ounce to about $1,570.
While Bitcoin has been the better short-term play, up 20% rather than 4%, gold’s rise has been steadier. The yellow metal traded at $1,460 one month ago. Bitcoin was at $7,600. The score over the last month shows Bitcoin up 9% and gold up 8%. By way of comparison, the one-week movement on West Texas Intermediate oil is 2%, for one month 6%.
Does this mean that Bitcoin’s time has come? Or is gold still the thing?
The Case for Gold
Gold bugs will argue that their asset is certain, and that the rise in its price has been steady.
Their primary argument remains the same as Bitcoin’s, that central banks can’t be trusted. They also note there are ways to win without buying the metal itself.
For instance, you can buy an exchange-traded fund tied to gold, like the SPDR Gold Shares (NYSEARCA:GLD). Or you could buy a gold mining stock, such as Barrick Gold (NYSE:GOLD) or Newmont Goldcorp (NYSE:NEM). Gold miners have something gold itself doesn’t have, dividends. The yields are under 2% but they’re real. The current per-ounce price is the highest in eight years.
Goldman Sachs says gold is a better hedge against what is happening than oil. OPEC has 2 million barrels per day of capacity in storage, and the current price is already higher than the market fundamentals. Gold also has history by its side. It performed well during the 1991 Gulf War and after the 9/11 attacks.
The point about gold, the analysts say, is that it’s a hedge against disaster. You’re not trying to make money, just offset losses elsewhere. It’s an insurance policy, something you put 10% of your holdings in.
The Case for Bitcoin
The argument for Bitcoin is that, unlike gold, it can substitute for large amounts of cash and move around the world with you.
Bitcoin prices doubled in 2019, from roughly $3,600 to $7,200, after their 2018 collapse from $20,000. Bitcoin’s survival has bulls predicting prices of $50,000 by the end of the year. You can also buy Bitcoin through an ETF, the ARK Innovation ETF (NYSEARCA:ARKK).
Bitcoin is starting to substitute for money in Argentina and Venezuela. Where real currencies collapse, Bitcoin remains, the bulls say. ATMs for cryptocurrencies are increasingly common.
But crypto has risks that gold and cash don’t. Computer glitches, price manipulation, dodgy exchanges and scams abound.
Bitcoin exchanges and trading still aren’t regulated. Some economists still consider the whole thing a scam. Predictions of doom by Peter Schiff and Nouriel Roubini are being laughed at by the bulls today. But Bitcoin markets are founded on trust, and many people can’t be trusted.
The Bottom Line
If the world ends tomorrow, having your assets in Bitcoin or gold won’t save you.
But you can make money speculating on fear. Whether that’s fear of a war, fear of a run on central banks, or just fear of singer Taylor Swift’s picture, fear, like greed, is something you can buy and sell profitably.
Fear assets are hedges against losses in real assets. They rise in price when other asset classes stop working. But they are unlikely to make you rich. If the worst happens you can only sell them once, and then you’re broke like the rest of us.
In the end, the fear trade is just that, a trade. It’s a trade on someone else’s fear, and your own.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.
