The growing feud between gold and bitcoin investors … why it’s a bad comparison … both are needed in a portfolio today
There’s an interesting feud brewing.
Gold bugs and bitcoin loyalists are jockeying for one-upmanship when answering a simple question …
Which asset is better?
Gold bugs look at bitcoin and scoff at its meteoric rise (up about 20% over the last week alone, trading slightly off its all-time high). They argue it’s a bubble waiting to pop — nothing more than the latest fad, no better than tulip bulbs or Beanie Babies.
Bitcoin loyalists discard gold as an antiquated relic, with its relevance dying out in our modern technological world. It’s a financial dinosaur that can’t compete with an electronic currency built upon cutting-edge blockchain technology.
To illustrate these perspectives, let’s start with economist David Rosenberg. He believes bitcoin is in a bubble:
You speak to most people that are asking me to put money in bitcoin, they can’t even tell you who the person was that developed it or even how it’s actually mined.
It’s just a classic, follow-the-herd, extremely crowded trade. It’s in a massive bubble.
Here’s more from Business Insider, with Rosenberg highlighting what he believes is a key advantage for gold:
While investors do know about the supply curve of gold with certainty, Rosenberg said that investors just “think they know” but don’t really know about bitcoin’s supply curve.
In the other camp, you have bitcoin bulls like Tyler Winklevoss, co-founder of the Gemini crypto exchange.
Earlier this fall, he tweeted:
Bitcoin is better at being gold than gold — and not just incrementally, but by an order of magnitude or 10X better.
And as for a bubble in bitcoin’s price, well, what bubble?
There’s a slew of respected hedge fund managers attaching lofty price-tags to what they see at bitcoin’s true, intrinsic value that make today’s price of about $23,100 seem like a steal.
One of the latest is Guggenheim’s Scott Minerd, who believes bitcoin should be valued at $400,000.
So, back to the feud …
Which asset is better?
Well, better for what, exactly?
***The faulty assumption underneath the feud
If we zero in on why this feud exists in the first place, it points toward a faulty assumption:
Gold and bitcoin accomplish identical roles in a portfolio. Therefore, choosing between them is a binary decision. You’re either in one camp or the other.
But this logic doesn’t hold up.
The truth is that gold and bitcoin are not competing for the same role in your portfolio.
Now, on a very surface level, they do share similarities that fuel the feud …
– Unlike fiat currency, there’s a finite supply, which makes them reasonable solutions to currency debasement
– Their value is rooted in the emotions/psychology of investors, rather than any cash flows generated by the assets themselves
– They’re considered chaos hedges — storehouses of wealth during volatiles times
But the reality is such similarities are shallow, leaving room for vast differences — so much so, that trying to argue their likeness is like arguing “lightning bolts” and “lightning bugs” are similar because they both share the word “lightning.”
***Gold and bitcoin are different-yet-complementary assets, and both belong in your portfolio today
Even the biggest gold bug would probably not suggest that gold could soar thousands of percent from here in our lifetimes.
Bitcoin could.
At the same time, it’s a pretty safe bet that gold won’t suffer a 20% pullback by this time next week. Meanwhile, bitcoin could drop that much by tomorrow.
Gold actually serves a role in various industrial uses. It’s also a luxury item — you probably won’t be seeing bitcoins fashioned into elegant earrings. This gives gold’s value more durability.
On the other hand, at this very moment, you could use your bitcoin to pay for luxury earrings on, say, Overstock.com. Try that with those gold doubloons sitting in your dusty lockbox. This gives bitcoin’s value more versatility.
As to its role as a wealth-preserver, gold has a proven track record of value since 700 B.C., weathering wars, economic collapses, and the coming-and-going of global empires.
Bitcoin has only been in the public eye for a handful of years. There’s no meaningful precedent for how its value will hold up if the markets suffer a deep, prolonged recession or depression.
On the other hand, studies suggest that Millennials are on the cusp of inheriting 5X times the wealth they have today, and 45% of them prefer bitcoin to stocks, real estate and gold.
When you combine that with bitcoin’s tiny market size — even relative to gold — this is an undeniable tailwind that gold simply doesn’t have.
Given these differences and many more that we don’t need to delve into today to make this point, investors need both of these assets in a balanced portfolio.
***To drive this point home, let’s circle back to our first point from above — the tradeoff between volatility and capital gains
If you’re a more conservative investor, how would you have felt about being in bitcoin as it collapsed more than 60% between summer 2019 and March of 2020? (Not to mention the bitcoin bubble-pop at the beginning of 2018 when the crypto lost roughly 90% of value.)
While gold has experienced pullbacks in recent years, there have been no drawdowns even approaching this magnitude of loss.
On the other hand, if you’re a more aggressive investor, how would you feel about being up just 49% in gold over the last two years, while bitcoin has exploded 457%?
The reality is these are vastly different assets, despite offering certain similar benefits. And that points toward the truth that gold bugs and bitcoin loyalists should unite over …
A balanced portfolio needs both.
Now, we could end things there — go buy gold and bitcoin — and call it a day.
***But if you’re looking to maximize your risk-adjusted returns within each asset class, you can take it further …
For gold, we’d point you toward our macro specialist, Eric Fry.
In his decades in the business, Eric has dug up more 1,000%+ gaining investments than anyone we know of in the newsletter industry.
In recent months, he’s combined his strategy with gold to help his subscribers generate a slew of triple-digit returns, many of which we’ve profiled here in the Digest.
Eric’s Speculator portfolio has been littered with big winners in precious metals for months. Below, are a few:
(Please note that some of these gains represent closed portions of a trade, not necessarily an entire trade).
Yamana Gold — 160%
VanEck Vector Gold Miners — 155%
iShares Silver Trust — 340%
Wheaton Precious Metals Corp. — 500%
iShares Silver Trust — 256%
And as to the open-position returns for Eric’s gold/precious metals plays in his Speculator portfolio, I’m looking at 814% … 302% … 274% … 156% … 123% … to name a few.
Click here to learn more about how Eric is playing gold today.
Meanwhile, over in the crypto space, we’d point you toward Matt McCall, editor of Ultimate Crypto.
While Matt’s a bitcoin bull, he believes that select, elite altcoins will create significantly more wealth for investors than bitcoin in the coming years.
For example, one altcoin we’ve highlighted here in the Digest is Chainlink.
Ultimate Crypto subscribers who acted on Matt’s recommendation earlier this year have already locked in a gain of 552% on a portion of their Chainlink investment and are now holding for more gains.
I’m looking at Matt’s Ultimate Crypto portfolio as I write this. Since launching earlier this year, it’s now up an average of 120%. Again, that’s the average gain.
And I can tell you that Matt is looking to add more altcoins to his portfolio very soon.
Wrapping up, the gold versus bitcoin debate isn’t a debate at all. While offering a few similar benefits, they are uniquely different assets — and a balanced, diversified portfolio needs both as we step into 2021.
Have a good evening,
Jeff Remsburg
