Why Gold Bugs Still Don’t Dig Bitcoin
I was lazily perusing some of my favorite charts this morning (which, as an analyst, is not uncommon) and happened across a gold price chart from the rather appropriately named goldprice.org website.
Now, it’s true that most of my work is on Bitcoin, but there are some significant similarities between the flagship cryptocurrency and the yellow metal, so this is a chart I refer to from time to time (in conjunction with others) to get a broad view of what’s happening at a top level.
What was striking about this morning’s chart was just how significant the recent pull back had been at a time when almost all assets had risen. In fact, it took the price back to the same level it was at on July 22 — a date that now seems like a point in ancient history when you consider what has happened since.
Over the exact same period, the bitcoin price has risen by approximately 58.47% to reach today’s dollar value of approximately $15,400 at the time of this writing.
What struck me is how unlikely that scenario would have been any time prior to this date, and how counterintuitive this outcome would have been if you’d tried to work it out in advance.
After all, apart from specific market sectors — especially tech — this has been arguably one of the biggest times of uncertainty in recent history. With COVID-19, U.S. elections, and unprecedented economic stimulus programs — under the “old” rule book, you’d just buy gold and wait for it to all blow over.
But the world is different now. We’re writing new rules, we’re taking new risks and we’re trying to make sense of a financial system that is under strain from all angles. In my view, nowhere is there a clearer example of this happening than here.
However, as I went to click away and carry on with my day, I had a second thought. Would hardcore extreme gold maximalists, the most famous and vocal of which is Peter Schiff, see it the same way? Would they now consider it at least possible that value could be stored through a new, entirely “artificial” asset like bitcoin?
Why? Or why not?
The Gold Bug Blind spot
Schiff is very active on social media and scrolling through his Twitter feed reveals no change in stance in terms of Bitcoin. His current comments are visibly anti-bitcoin, not just as a store of value, but even about having an existence at all.
This is not uncommon among what I refer to as the “Old Guard” of the economic world, and it’s not just Peter.
Nouriel Roubini and Warren Buffet are other famous big hitters who also despise the coin with a passion, yet interestingly agree with the assessments of the underlying macroeconomic picture.
So, the strange situation that we find ourselves in is that we all agree that fiat is bad, the global economy is in trouble and it’s up to the individual, company or sovereign state to protect their wealth. They just see that route to salvation as gold (or other assets) and not Bitcoin.
But these are very smart people — why would they not consider Bitcoin an option at all?
We can change your mind … I think
Listening to these people speak in general interviews gives us some clues, and more than one cryptocurrency advocate has tried to change the mind of each of them without success.
Sometimes we only get a summary of those encounters, such as Justin Sun’s famous (and expensive) dinner with Buffet, but sometimes you get to hear the whole argument played out.
Schiff has regularly appeared on podcasts and shows, and I have listened to many of them, but my favorite is actually by fellow Brit Peter McCormack. This is a well balanced discussion with valid points and solid rebuttals on both sides and it makes compelling listening.
You can read the transcript or listen to the entire podcast here.
There’s no doubt that Schiff didn’t change his mind through the course of the podcast, but it does give some extra clues about where his thinking is at.
Bottom line? This is all about the “wet paint” scenario.
Wet paint and bars of Bitcoin
We humans are very odd in certain ways, and often predictable. Consider, for example, the following situation:
Let’s say you and I, following COVID-19 guidelines, got to meet in a park, something that is still allowed in the U.K. at the moment. As we go to sit down on a nearby park bench, we notice a sign that says “wet paint.”
What’s the first thing you’d do?
I can almost guarantee it’ll be to touch the bench to see if the paint is really wet, even though there is a sign that quite clearly says it is. Not only that, but even if the paint clearly possessed that “just painted” look, we’d still touch it, just to make sure.
There’s all sorts of sensible reasons for this that have to do with checking that the sign hasn’t been left after it was painted hours or days previously, or simply wondering just how wet it is, but mainly because there’s a part of us that wants to physically confirm what we’re being told. It doesn’t change the fact that it is, or isn’t wet, but it does change our perception of that status.
Could it be it’s as simple as that? Let’s put it another way.
Imagine for a moment that Bitcoin had never been invented. Instead, in 2008 we had simply discovered a new mineral, with very similar qualities to gold, in small deposits around the world and learned to process and develop it.
Let’s assume it has a specific use in the manufacture of, for example, a new generation of electric car batteries, but in reality its value was derived from holding and speculation, in much the same way as gold. Mining industries sprung up all over the world searching for this new, scarce asset called Bitcoinonium.
In just over 10 years, this commodity had become one of the most sought after assets on the planet and bars of it were guarded in special facilities.
Trading was now possible using the asset itself and derivatives such as futures and options. It was being adopted by all levels of high net worth individuals, funds, businesses and even sovereign states were considering holding it.
How would Schiff and his colleagues react to this? Would they have been negative and seen it as a competitor to their precious gold, poo-pooing it at every opportunity?
Or would they have pivoted some of their business to secure some of this new asset and store it in their vaults using the same systems they already have?
My guess, especially based on comments in the podcast, is that they would have done the latter. Maybe not immediately, but at some point it would have become difficult not to.
So, what’s the difference?
The truth is that it is hard to get your head round Bitcoin’s vast power and network, especially at first. It doesn’t feel real or tangible. After all, if I can clone your hard drive and have a copy of all your music, surely I can copy your bitcoins too?
Well, you can’t. Satoshi’s genius was solving the “Digital Scarcity” problem, ensuring that only you have your bitcoin, until the point you irreversibly give them to someone else. It is the Holy Grail of value transfer which simply doesn’t translate to a world of physical gold and requires a way of thinking that is incompatible with that mind set.
In short, Peter needs to “touch the paint” to check it’s dry, he needs that absolute proof and mathematics simply won’t cut it. It has to be physical.
The theory is a theory
Of course, this is all a simplification. Peter cites many other reasons in this podcast and many other media appearances, as do the other opponents listed here.
All, however, have valid counter arguments on a logical level, but this doesn’t matter if the fundamental belief is that the paint is not wet when it is, especially if you, at least in your mind, have no way to check.
After all, we sometimes change our minds, but we rarely change our beliefs.
Buffet is quite honest when he says he doesn’t understand it and doesn’t really want to (the man IS 90 years old), and Roubini simply won’t even look at it enough to start understanding it properly. He still bases his opinion on the very early days of Bitcoin, when it was barely out of the sandbox.
That’s like refusing to use the internet because when you dialed in with your 28.8kb modem in 1998, you thought the text based websites were rubbish and it was really slow.
In any case, it doesn’t matter. Bitcoin’s march towards global adoption is now next to inevitable, regardless of what gold bugs think and the truth is I believe both assets can co-exist and complement each other in the same way I believe that Bitcoin and whatever fiat based system we’ll be using can co-exist.
It’s just that Bitcoin will be better, more versatile and more widely available than all of it.
Of course this is all just theory made up of letters on a screen.
You can’t physically touch the idea, so you’ll just have to go with it.
And therein lies the problem.
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Disclosure: The author of this opinion piece has been heavily involved with bitcoin for several years and holds a substantial cryptocurrency portfolio, including bitcoin. He also has a mining operation running the SHA-256 algorithm based in Siberia and is a published author on the subject of promoting the understanding of cryptocurrency. Jason is an analyst at Quantum Economics. This story first appeared on Voice.com
Disclaimer: This content is for educational purposes only. It does not constitute trading advice. Past performance does not indicate future results. Do not invest more than you can afford to lose. If you found this content interesting, and have an interest in commissioning content of your own, check out Quantum Economics’ Analysis on Demand Service.