BITCOIN & GOLD There is a major debate going on between BTC and gold. Investors, including institutions, are putting major amounts into BTC.
I am not a Bitcoin expert. But I am very clear that the reasons for recommending gold as the ultimate form of wealth preservation cannot be fulfilled by Bitcoin.
I have stated many times that BTC could be a spectacular investment and go to $1 million as for example Raoul Pal (RealVision) advocates. He is a very smart investor and bases his forecast on stock to flow.
On the other hand, in my view, BTC could go to zero if central banks ban it as they introduce their own digital currencies. Since BTC is not backed by any asset or any central bank it would be worthless if it was banned. Sure, there could be a black market but that wouldn’t serve much purpose if virtually no one would accept payment in BTC.
The degree of wealth preservation required to preserve capital depends greatly on where we are in the investment cycle.
If investment markets are sound and not overvalued as a result of speculation or false markets, stocks and bonds can represent sound wealth preservation.
However in the present bubble markets, all assets are overvalued as a result of unlimited credit expansion and money printing. As I stated above, the risk of a 95% fall is much greater than a 100% gain.
Government bonds, used to be the ultimate form of wealth preservation. Many investors have still not realised that heavily indebted governments, who are totally dependent on money printing to make ends meet, are an extremely poor risk.
CRITERIA FOR WEALTH PRESERVATION
So we are now in a period when wealth preservation requires the application of very strict criteria.
Let’s look at some of these:
- The wealth preservation asset must not be dependent on electricity, internet, or computers
- The asset must not be hackable
- It must not depend on a code which is crackable
- It should not be traded online
So these four criteria clearly exclude any digital form of money or other digital asset.
I will not go into the detailed reasoning behind the above criteria but to an investor who wants the safest foundation for his wealth pyramid, as well as the best insurance possible, they should be obvious.
The ultimate wealth preservation asset must be (as my good friend Simon Mikhailovich states):
- Independent
- Scarce
- Permanent
The above points 1-4 partly define independence. But more importantly, physical gold doesn’t need the financial system. Even less so when the system is totally dysfunctional like currently.
Bitcoin is definitely not independent based on the 1-4 criteria.
Gold is clearly scarce. 190,000 tonnes ($11t) have been produced in history. Virtually all of that is still here. Around 1.5% is added annually in new mine production.
Investment gold is only 43k tonnes or $2.6t. That represents 0.5% of world financial assets – a minuscule part.
So this is the one thing that gold and Bitcoin have in common – they are both scarce.
Where physical gold is superior to any other financial asset is its Permanence.
Gold has been money for 5,000 years and is the only money which has survived in its original form.
Again we are back to history. If only one currency has survived for 5,000 years, it clearly proves that it has the right attributes. Anyone who wants to argue that Bitcoin or other crypto currencies can assume the mantle of gold after 11 years’ existence is premature by a few thousand years.
Cryptos/digital currencies are such a new development that even if they survive, there will be 100s or even 1000s of mutations over time. So permanence is very unlikely.
The risk with digital currencies, whether it is BTC or issued by a central bank, is also that they can disappear in a millisecond. Anything from EMP attacks (electromagnetic pulse) to quantum computers can make this form of money just vanish.
https://kingworldnews.com/greyerz-just-warned-the-death-of-money-will-now-accelerate/