Disclaimer: Your capital is at risk. This is not investment advice.
ByteTree Market Health Update; Issue 71
This week I have written an open letter to Daniela Cambone-Taub. She will be hosting the debate between Frank Giustra and Michael Saylor. These are prominent people in the gold and Bitcoin communities.
Giustra publicly challenged Saylor to debate his thesis on gold and Bitcoin. He claims Saylor uses friendly media outlets and has not been effectively challenged to date. Saylor ran a poll, asking whether he should debate Giustra. In a vote by 20,684 respondents on Twitter, 90.3% said yes. It’ll be fun to watch.
Daniela Cambone-Taub is the Editor-at-Large & Anchor at Stansberry Research, following a successful 12-year run at Kitco News - a leading source of information in the gold market. Cambone-Taub will be the host for the debate.
Frank Giustra is the president and CEO of the Fiore Group, a private company with interests in natural resources, media, food and more. He made his name in stockbroking, specialising in the mining sector from 1978. He went on to do some spectacular deals in natural resources, as well as having success in the media industry. In philanthropy, he recently inspired the creation of one million gardens in impoverished areas. His gripe is that Bitcoin and gold are very different, and gold performs a portfolio function that cannot be replicated by other assets. I agree.
“So think of gold as insurance. Not an investment. Having some amount never hurts.” - Giustra
Michael Saylor is the CEO of MicroStrategy (MSTR), a business intelligence software company. He became well known in Bitcoin circles in 2020 following a decision to invest his company’s surplus cash reserves into Bitcoin. That wasn’t enough, and so he raised $1.5 bn in loans and MSTR now owns more than 90,000 BTC worth over $5 bn. He is Bitcoin’s most powerful ambassador, and at ByteTree, we have nicknamed him “Bitcoin’s Head of Sales”.
“Gold doesn’t work anymore. Bitcoin broke it.” - Saylor
An open letter to Daniela Cambone-Taub
I am delighted you are umpiring the gold versus Bitcoin debate between Frank Giustra and Michael Saylor. We last discussed this subject in September 2018, at the Denver Gold Conference.
As I said then and would repeat today, both assets have much to offer. There is no need to choose between gold and Bitcoin as they will coexist and offer different outcomes. Better still, when held side by side, they create an unparalleled all-weather, long-term inflation hedge. Few people seem to understand this powerful argument for holding both.
It would be wonderful if you can extract as much positive comment from both corners about these assets. I hope they will explain their key differences, covering both their advantages and disadvantages. At ByteTree, we are a digital asset manager, but have embraced the gold and Bitcoin combinations (BOLD). Here are some of the challenging questions in the Bitcoin versus gold debate that I have had to tackle over the years.
Supply and fees
Bitcoin has a fixed future supply, and the growth rate in new coins diminishes rapidly after 2032. Future gold discoveries are also diminishing, but the supply is expected to be greater than for Bitcoin.
In the gold market, it is widely accepted that recycled scrap metal returns to market and is reflected in the supply figures. In Bitcoin, there are fees, which will be high post-2030 and beyond. I estimate them to be between 0.2% and 0.7% of the network value each year. Should Bitcoin treat fees in the same way gold treats scrap?
If so, the future supply curves for gold and Bitcoin are approximately the same.
Both assets make a strong case to be defined as hard money. Bitcoin has some tech-enabled advantages, but gold is inert. Which is more powerful? The certainty that an asset cannot be destroyed or the benefits of technological development?
The past ten years have shown us that 95% of Bitcoin’s performance has coincided with flat or rising inflation expectations. For gold, that has been witnessed over the past 5,000 years. Would they agree that Bitcoin and gold are both inflation hedges?
Would they also agree that gold is likely to perform better in a risk-off inflationary world (last spring/ summer) when concerns over the economy and rates were ultra-low as the money printing kicked in? And would they accept that when the economy warmed in October (rates picked up), Bitcoin took over from gold?
When rates next turn down, when the economy next slows, do they appreciate that gold will start to outperform Bitcoin again?
One argument is that Bitcoin has outperformed gold over recent months. Bitcoin has delivered greater performance, but that is in part because it is a youthful asset and is still capable of behaving like a growth stock. Such an asset would do well as the economy recovers and after real interest rates have risen. Conversely, that is never a good time to own gold, which benefits from falling real rates. I suspect that when the bond yield turns down, gold will start to outperform Bitcoin. Recent performance differentials have no bearing on the long-term merits of these assets.
Does anyone seriously think that recent gold weakness was caused by Bitcoin, despite it being a naturally soft macroeconomic environment for gold?
In terms of energy consumption, a gold miner gets paid just once, and the gold is yours forever. Bitcoin miners demand more money every ten minutes, and their demands will continue forever. Since 2009, they have sold an estimated $28bn of Bitcoin. Is that energy really stored as monetary energy, or has that $28bn gone up in a puff of smoke?
Assuming Bitcoin delivers, it has more upside than gold, because, unlike gold, it is not yet fully established. Gold is already widely distributed (jewellery owned by a large part of the world’s population), 10x more valuable (total supply), 10x more liquid, and 3x less volatile. For Bitcoin to catch up, much work still needs to be done. How long would it take before this becomes true, if ever?
If Bitcoin is accepted as a monetary asset by the majority, returns for Bitcoin and gold will converge.
Technology and mobility
On the subject of technology, Bitcoin won’t change much, but the service providers and layers on top of it will. Once this technology is refined, is Bitcoin required for collateral, or could it be anything, including gold and other liquid assets that have been tokenised?
Central banks and the establishment
Gold is actively traded between central banks, especially in the emerging markets. They are “value buyers”, which exist in mature markets. When the price is down, the central banks and the jewellers load up. This is an important force that helps gold to quash price volatility. Similarly, when the emerging markets are doing badly, their gold becomes valuable in local currency terms. They take advantage of the high gold price and sell.
See what happened to Bitcoin in March 2020. It collapsed, whereas gold held steady, especially in emerging market currencies. This is important because EM currencies performed poorly in 2014, 2018 and 2020. In other words, Bitcoin is correlated with EM currencies and therefore offers no protection at the moment of need. If they held Bitcoin instead of gold, they would have been selling a distressed asset at the wrong time. How could this change so that Bitcoin would become a risk-off asset? Who is the value buyer? Can you imagine central banks actively trading bitcoins?
What is the chance that either or both assets could struggle due to regulatory pressures? Regardless of how much you prefer one asset over the other, would you agree that a combination would offer greater certainty and protection?
These are a few of my thoughts and I hope they help you in preparation for your interview. I’ll be watching the interview, along with the team at ByteTree, and will air a short debrief afterwards.
Good luck with keeping them calm,