Bitcoin or Gold?
People buy gold as a store of value.
But in my experience, when you need gold the most to hedge your portfolio, it hasn’t worked.
During the financial crisis, people moved their assets into gold. But it sold off along with stocks.
And during the crisis last year when the pandemic hit, gold dropped when the stock market did.
Today, Steve Fernandez and I discuss why bitcoin could replace gold as the world’s store of value.
(If you’d prefer to read a transcript, click here.)
Ian King: Hey everyone. Ian King here with your weekly Winning Investor Daily webinar. Joining me this week again, my friend and colleague Steve Fernandez.
Before we start today’s webinar, I just want to remind you that if like what we have to say in the webinar, go ahead and smash that like button, and tell your friends to subscribe to us.
This week we’re going to talk about something that might be a little controversial for many of you. And that is the fact that bitcoin, in the next, who knows, five years, 10 years or so, could replace gold as the world’s store of value.
Bitcoin or Gold?
Now, I want to start this out by asking Steve this question because he represents our younger generation. Steve is basically almost a millennial. He’s basically on the cusp of millennials and Gen Z.
Steve, are you buying bitcoin or gold as a store of value?
Steve Fernandez: I have to correct you there. I’m technically a millennial. I’m on the cusp of being a Gen Z.
Ian: OK. So, you’re not that young.
Steve: Yeah, exactly. But I know that the younger generations definitely are leaning toward bitcoin.
I mean, it’s a lot more accessible. Obviously, you can own gold, you know, indirectly through an [exchange-traded fund]. But not many people are, you know, buying gold futures and taking delivery of gold bars or going to gold stores.
So, just from the convenience aspect, there’s definitely a push toward bitcoin.
And, also, we’ve all seen what the price of bitcoin has done as well. So, that’s all obviously attractive.
Ian: Mm-hmm. I’m glad you mentioned that. I want to pull this chart up right now.
So, as we see, bitcoin has broken above $50,000 in the last week. Its market cap is also above $1 trillion. That’s based on a technical move and also some talk in Brazil that they’re going to put it up for a vote to make bitcoin legal tender.
This will be the second country behind El Salvador to make bitcoin legal. But Brazil is a much larger country. Steve, what do you think about that? I mean, could this really be legal tender in Brazil? Do you think this will pass?
Steve: I think so. There’s been some general interest in the Latin America area. I mean, Cuba has already made commercial transactions legal for all coins and bitcoin, and I’ve even heard that Panama is in a similar boat with Brazil, where they proposed a bill for bitcoin becoming a legal tender.
Is Bitcoin Surpassing Gold?
Ian: Mm-hmm. Let’s go back to this idea, though, of bitcoin surpassing gold in market cap. And I just want to pull this up.
Gold’s market cap right now at about $11 trillion. Bitcoin, as I said, just crossed $1 trillion.
You know, people buy gold as a store of value. But from my experience, when you need gold the most to hedge your portfolio, it hasn’t worked. And I remember back during the financial crisis when people were, you know, moving their assets into gold thinking that it would go up. And it sold off with other financial assets.
Now, bitcoin could still do the same thing. I think it probably sells off with the stock market the next time we enter a bear market or a recession.
But, you know, there’s this idea that gold is always going to be a store of value. You know, it’s held up for 5,000 years and has worked really well since the 1970s when Nixon abrogated the gold standard.
What Happened During The Pandemic?
But you know what happened last year during the pandemic to gold, Steve?
Steve: So, I’m going to showcase my short-term bias here. But, obviously, the whole COVID pandemic has been traumatic, and the market was in a panic last year. So, I mean gold, it dropped, like you said. And even uncorrelated assets showed some correlation.
Ian: “Uncorrelated assets”? Can you explain what that is?
Steve: Sure. So, uncorrelated just means, let’s say the market moves in one direction, and gold doesn’t move at all. Right? So, generally, they’re considered uncorrelated.
But in times of stress, most assets are correlated in some degree. Bitcoin, gold, they both sold off. But when you look at just the first six months of 2020, you know, right around where the COVID pandemic was really heating up, bitcoin had already surpassed gold in terms of its return.
So, not much of a hedge on gold’s return there.
Will Gold Buyers Move On To Something New?
Ian: Hmm. Interesting. And one other note that I want to bring up is everyone says, well, gold has always been this store of value throughout history. And I just want to bring up an example of how things that we think have more value in the past don’t now.
I was at the Metropolitan Museum of Art in New York City. This is probably eight years ago. I was walking around, and I was talking to one of the museum curators, and I was in the Greek antiquities section. I don’t know if you’re familiar with that, Steve. That’s where they all the statues and the sarcophagi.
Steve: Not too much.
Ian: I mean, these are statues that are 2,000 years old. OK? And I asked the art curator, you know, how much would one of these statues go for at auction? And she said to me, probably around $1 million. And that just seems so cheap for something that’s 2,000 years old that we hold in high esteem.
So, there’s that issue. She was saying how, you know, there’s just not many buyers. There were buyers in the ‘80s for these antiquities, but now buyers are moving on to more modern forms of art, and NFTs in particular.
And the other thing is the idea that gold is this technology that stores value. But we’ve seen throughout history that when a new technology arrives, people move from the old technology to new one.
So, case in point is we used to ride around on horses, and we had horses and buggies. The automobile came by, and that was just a better way of getting from point A to point B. And in the same way, bitcoin is a better way of storing value because, you know, you can self-custody it, you can move it. It’s fungible. You can send it anywhere around the world, and it has all the properties that gold doesn’t have.
The Younger Generation Is In Control
But, lastly, and I think this is why what you said about yourself and your peers thinking bitcoin is going to be the future’s store of value is important. It’s not really about what the older generations think. It’s what the younger generations think because they’re the ones that are going to be where the demand is coming from. Right?
You know, anyone who is of working age right now and is allocating money to their investments from their paycheck, that’s really moving the needle on these assets more than anything else. It’s not really about what you think or what you had invested in in the past. It’s about, where is that future demand coming from?
That’s why I wanted to ask you that question about whether or not you’re investing in bitcoin or gold as a store of value to hedge some uncorrelated risks in your portfolio. So, that’s what I have to say about that.
Steve: Yes, I agree with that 100%. Obviously, as time goes on, the younger generations work, and they have more income. The younger generations, they’re dollar-cost averaging, and in many cases into crypto.
Basically what that means is, let’s say they get their paycheck, and they allocate 10% of their paycheck automatically to cryptos. They don’t touch it. I have not heard of one person doing that with gold. I’m not saying that it doesn’t exist. I’m sure it does.
But it’s not even just, like, retail investors and the younger generations. Even with institutions you don’t really hear about gold unless there’s really a stressful period like we saw last year.
You don’t really hear, like, the narrative of “Go out and buy gold,” right? But we’ve heard the overwhelming, overwhelming narrative of “Go out and buy crypto,” where institutions are creating funds to buy crypto.
So, obviously, bitcoin is the main crypto, per se, on a market cap basis. So, you have to think that it should grow, and hold value as well.
Ian: Right. It’s really the perception that counts. And one other thing too, to your point about millennials and Gen Z investing in crypto projects: The banks are also getting into this as well.
Initially, you know, they were hesitant and laughed at it. [JPMorgan Chase CEO] Jamie Dimon called bitcoin a fraud and a scam. And now, just in the last week, Bank of America says it’s going to open up a crypto division because this sector is just too big to ignore.
And, obviously, banks do this because they see profits. They’re not doing it for altruistic reasons. And, of course, with crypto being insanely profitable in the last run for investors, it’s exciting to see that banks are now going to facilitate their investors and help people do their research and come up with new ideas in the future.
So, let’s leave it there. We’d love to hear from you in the comments this week. Any questions? Let us know. Do you own gold? Are you moving some of your gold reserves over to bitcoin?
For myself and my colleague Steve, have a great weekend, and we’ll talk to you next week. Thank you.
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My career on Wall Street started while I was in college. I spent a summer interning for Merrill Lynch in the middle of the ‘90s bull market. I was fascinated with trading, and as a result, after college, I joined Salomon Brothers in the famed mortgage bond trading department. Later, I spent time at Citigroup working with credit derivatives. Eventually, I needed to walk away from the excess of Wall Street. That’s when I joined Banyan Hill in 2017. Now I help readers get ahead of the market and build their retirements.