STAFF NEWS & ANALYSIS
Should you own bitcoin or gold? That’s easy
By Tama Churchouse - July 20, 2017

Gold bugs are rarely, if ever, bearish on gold. To them, it’s the only real currency in a world of money-printing central banks endlessly devaluing their fiat (that is, paper) currencies. There are few people who believe so fervently as gold bugs.

But bitcoin fanatics come pretty close. These folks believe that this decentralised digital currency is the ultimate means of easily transferring value without the need for centralised entity, intermediary, or central bank. Bitcoin is a libertarian dream.

Now, given that gold bugs and bitcoin fanatics share a common desire – a completely independent store of value – and a common enemy (central banks), you’d think they might be the best of friends. But they’re not.

In fact, they’re more like dogs and cats – or chalk and cheese. They don’t mix well, at all.

I know this because I’m privy to a private mailing list that’s run by an old family friend who’s a consigliere of one of Hong Kong’s wealthiest families. He, along with a couple dozen business and financial gurus and veterans, some with names you recognise, share their investment ideas and opinions on all things related to global finance and investing.

And recently the topic of cryptocurrencies and bitcoin came up. After watching carefully thought-out emails travel back and forwards within the group, I drew a few conclusions.

Gold bugs don’t like bitcoin

Most of the guys (and they’re almost all men) on this email list are grizzled investors, and they like their gold. To be precise, their physical gold. They dismiss bitcoin as a fad, a craze, all hype and no substance.

As I said, bitcoin is frequently compared to gold. They’re the only two widely distributed, decentralised methods of exchanging value as currency. There is no central authority issuance like there is with U.S. dollars or any other fiat currency.

Neither bitcoin nor gold can just be “printed” at the push of a button by an anxious central banker. You have to either earn your gold by mining it – which is what you do to mine bitcoin, but with computers instead of picks and shovels – or you can pay cash for it.

But for the gold bugs, there’s no substitute for being able to see, feel and carry their gold.

Bitcoin? That just exists somewhere on the internet as far as they are concerned.

Most people can’t easily comprehend bitcoin and cryptocurrencies

I remember nearly two years ago talking with Peter about bitcoin. At the time, I said the biggest hurdle I saw between the current state of bitcoin and mass adoption was that it’s not easy to fully explain in less than thirty seconds to the average guy on the street.

That problem still exists today.

Yes, you can just it’s a “digital currency”, and that’s a start. But explaining the fundamentals of blockchain, and the distributed ledger systems upon which it’s built is not straightforward. It usually takes time and effort for people to really understand just how much of a breakthrough bitcoin really is when it comes to a being a trustless mechanism for exchanging value. (Trustless in the context of bitcoin means we don’t need to trust an intermediary to settle our transaction – we can exchange value directly with one another securely thanks to distributed ledger technology.)

Gold is the very opposite of new technology

It’s human nature – and, from an investment perspective, smart – to be skeptical of large world-transformational promises built on a new technology… especially one you don’t understand fully yet.

On the other hand, a gold coin is a gold coin. It’s shiny, heavy, tangible, and it exudes value and permanence.

As one of the guys on the cryptocurrency email thread succinctly put it:

“I prefer a currency that has survived 5,000+ years of wars, empires, the rise and fall of countries, cold spells, hot spells, and has been universally accepted in every country of the world.”

I can’t argue with that.

Gold doesn’t have a point of failure in the way bitcoin does. If the worst happens – by that I mean the kind of scenarios that doomsday preppers hark on about – a lack of internet connectivity removes my ability to do much with my bitcoin.

A gold coin can still sit in my pocket, even while I might be fending off mobs, zombies, nuclear winter, etc.

But the world is changing – away from gold.

Consider this. Gold might have been a bedrock form of currency for thousands of years – but so were the pen and paper, for communication. When I was packed off to boarding school, my only means of correspondence with my parents was through the mail. Even at secondary school, the only way to communicate with the fairer sex (I was at an all-boys school) was through letter writing. And now, it wouldn’t surprise me if my kids never write a single pen-and-paper letter in their lifetimes.

And let’s be honest, the gold bug demographic is typically more towards the senior end of the spectrum. So, will the physical tangibility of gold become less important over time for generations who gradually shift more and more of their entire lives into the digital world?

Bitcoin, cryptocurrencies and blockchain technology

People interchange the words bitcoin, cryptocurrency, and blockchain. The truth is these are all different and similar at the same time. Bitcoin is a cryptocurrency built on a blockchain. Cryptocurrencies, of which there are hundreds, vary hugely in what they do and what problems they purport to solve, but they all (with one or two exceptions) leverage the kind of blockchain technology that bitcoin pioneered.

The word “currency” in cryptocurrency is somewhat misleading, as many of these have very specific security-like characteristics that provide economic ownership of a commercial blockchain. It’s very easy for people to lump cryptocurrencies into a single basket. But that’s like saying that all of the 3,207 NASDAQ-listed stocks are all the same.

So, gold versus bitcoin?

If you were to ask me which I think is more likely to be around a hundred years from now, it’s gold… every time. Nothing has usurped it for millennia as a globally-accepted medium of exchange or store of value, and I don’t think bitcoin will do so either.

Gold can’t be altered. Gold is gold. Once I own it, that’s it. I don’t need to rely on a functioning internet. I don’t need a computer. It’s pure tangible value.

Bitcoin, however, runs on a protocol that can be changed. Without going too much into it, a couple months from now, bitcoin could look completely different.

But I own bitcoin the same way I own gold. Locked up, out of sight, and out of mind. The gold will always be there… as for bitcoin, I can’t say that with 100 percent certainty.

But if you ask me which one is likelier to be up 1,000% three years from now, the answer is bitcoin. It’s still just a $45 billion-dollar market cap.

Gold has stood the test of time and a medium of storing value. For that reason, it deserves a place in your portfolio. Bitcoin’s time on the other hand, is just beginning. Blockchain is the future, and when you have an opportunity to buy the future and tuck it away, you should take it.

Good investing,

Tama

P.S. We put together a free report on bitcoin… how to buy it, move it and store it – you can download it at absolutely no charge by clicking here.

This was written by Stansberry Churchouse Research, an independent investment research company based in Singapore and Hong Kong that delivers investment insight on Asia and around the world. Click here to sign up to receive the Asia Wealth Investment Daily in your inbox every day, for free.

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  • Rich A

    The problem is see is that most crypto’s have no intrinsic value which would make them money. Crypto’s are not money because they can’t assure their value in the future. What is needed is a crypto that is tied to a precious metal or something tangible that maintains value. Perhaps a system of gold or silver vaults that are decentralized around the world so that a country with a big army can’t go rob it at will. (a la Libiya, WTC, Iraq,etc.) We need a decentralized blockchain that cannot be controlled by any one government but yet be secured against tampering. The one thing gold always did was maintain the value of a mans work,wealth, and savings against the thievery of the bankers.

    • georgesilver

      “What is needed is a crypto that is tied to a precious metal” This is about to be announced by Andrew Maguire (Whistle Blower Out of London). Another precious metal ‘pump’ scheme by the looks of it. Bullioncoin is the name. Looks to me just like another scheme to push unallocated Gold wrapped up in a fancy crypto pink ribbon.

    • Still Watchin

      The intrinsic value of cryptocurrency will be in it’s utility. Automatic negotiation of contracts and documentation on the distributed ledger has intrinsic value. As with all commodities, the value is in what you can do with it.

      • Great point, value in the platform and technology itself.

    • Allan

      There isn’t anything that can assure it’s value in the future. It’s quite possible for the price of metals to go up/down, just like every other asset. They’ve got a great history, which gives one some guidance. But there are no guarantees in life.

      Also, a crypto tied to physical metals doesn’t really add anything. There’s already scarcity built into the BTC protocol, so I’m not sure what good having it “backed” by gold would do. It would just make you dependent on a 3rd party to store it. Plus, you’d have to worry about it being seized/stolen. The benefit to crypto is that it doesn’t exist in the real world. It’s just math.

      • Rich A

        Gold has never gone to zero. It has maintained its value for 5K years. One Oz. has always been able to purchase a fine men’
        s suit throughout history. One of the qualities of “MONEY” is that it is a store of value. The U.S. dollar is no longer money, it is fiat currency. I agree with the issue of third party dependence though. That is the the real issue. We all know that we must get rid of the private central banking system so I am proposing that if a system of diversified vaults for precious metals all over the world could be developed so that no one place held more than a certain percent of wealth and yet could permit people to exchange metals like a bank maybe it could be accomplished.

        • Rich A

          If there were several different blockchains that used the same standards they would maintain the same value for their coins yet they would have the same value all over the world. They would be able to be exchanged for equal values based on the metals or commodity used. The important thing is that the could never go to zero which is why I think people stay away from cryptos now.

    • Correct. Cryptocurrencies are just that — currencies, not money. Currencies are basically fancy IOUs. “I promise to pay”.

      Money is entirely different. Money is something that has value in and of itself. What we need is not cryptocurrencies, but cryptomoney.

      We need money that is tied to precious metals but which can enable anonymous electronic transactions.

  • Praetor

    Doesn’t Bitcoin rely on electricity for it’s very existence. Yeah, gold is tried and true and does not rely on electricity to exist.!!!

  • georgesilver

    I’m a Gold Bug but I was interested in Bitcoin until I found its flaws… and boy does it have them. You are either into Gold or Bitcoin…. rubbish! A sign of our modern times and controlled media no doubt.
    I tried to get into crypto currencies but there were too many hurdles. Bank account in the UK. Living in France. The transaction speed is abysmal. If there was a sudden collapse in cryptos very few people could get out the exit so tiny. Plus they are growing exponentially. More cryptos eventually than people on the planet? To sign up for cryptos you must give your whole life history plus bank details away to some unproven entity…. no thanks
    Gold on the other hand is real and physical but most people think it is manipulated…. also rubbish!
    Everywhere you look on the internet you will find the constant babble about Gold and particularly Silver going to da Moon.
    Experts (joking term) tells us that precious metals are unbelievably undervalued because the powers that be manipulate the price down. They conflate real Gold with ‘paper Gold’ and come to a completely false assumption. Paper Gold and Silver are certainly manipulated but REAL Gold and Silver in my opinion are not. I could expand on this but it would run into many pages.
    Just remember this. If something is physical, rare, precious and in great demand then its price cannot be manipulated down only UP. Forget all of the fancy talk about derivatives and naked shorts. This only applies to ‘paper Gold’.
    There is more but I’m beginning to bore myself………….

    • Allan

      You can buy Bitcoin through localbitcoins.com and not give a single piece of ID. Basically, you just meet somebody and give them cash. Good for smaller amounts.

    • James Clander

      “Paper Gold and Silver are certainly manipulated but REAL Gold and Silver in my opinion are not. ”

      The “important” part you left out is that Paper PMs “currently” set the Price.
      That will change at some time -hopefully sooner than later.

      Like you I believe especially in real physical Gold – And fully agree re Cryptos.

  • autonomous

    Gold bullion is harder to debase, but is difficult to distribute. Bitcoin is easily distributed but, as with internet communication, cannot be trusted to be secure. When even the CIA systems can be hacked, I’m not prepared to trust a digital currency. Unfortunately, mankind cannot be trusted. Even the purity of gold must be entrusted to assayers. A fundamental law is that if it can be corrupted, it will be.

    • Allan

      Your statement “when even CIA systems can be hacked” kind of implies that you think the balance of all Bitcoin accounts is stored on a server somewhere, which isn’t the case. The “key” to each address is stored by individuals and not in some giant repository somewhere. So in order to “hack” Bitcoin, you have to gain access to these keys one at a time, which is much harder than getting into one particular system. Food for thought.

      • autonomous

        Harder is not the same as imposible. If it can be done, it will be.

        • Allan

          Then aren’t you worried about someone breaking into every gold vault in the world? Seems like the same issue.

          • autonomous

            “where moth and rust doth corrupt, and where thieves break through and steal”
            No matter the form of wealth, it is always subject to disintegration or theft.

          • Bischoff

            The original 1913 Federal Reserve Act required the value of Bills of Exchange pre maturity in the vault of a banks, along with the value of up to 40% in gold for all the redeemable bank notes (paper currency) issued.
            Starting in 1920, the regional FRB NY under the governorship of Benjamin Strong started illegal Open Market Operations in U.S. Treasuries (Gold Bonds). The Federal Reserve Board under watch by the U.S. Senate, whose
            Senators were now elected pursuant to the 17th Amendment to the U.S. Constitution, did nothing. The result was the 1935 real estate bubble bust and the 1929 stock market crash. When people wanted to redeem their paper currency for gold in the early 1930’s, the banks refused or simply were unable to redeem.
            Instead of putting bankers into jail for violating the 1913 FRA, FDR issued an executive order confiscating the gold savings of the American people. With the 1933 and 1935 NBA, the original Fed was turned into an independent federal agency run by the banking industry. Their issue of FRN were irredeemable for U.S. Citizens. They became irredeemable for foreign central banks after August 15, 1971. With the 1982 NBA, the FRN was extended “legal tender” protection. That is the situation today.
            By running congressional budget deficits, the FRN was able to be monetized for decades. However, the sale of the government instruments incurred interest expenses which simply compounded over these decades. Since 2008, any government debt sold will cause interest expenses which exceed the principal. That’s why we no longer have sales of treasuries, instead we have Quantitative Easing (QE or repurchase of government bonds with currency created out of thin air).
            A redeemable digital currency in which every U.S. Dollar {defined in terms of ounces of gold) using the value of Bills of Exchange and gold on hand as the basis for creating the digital currency can work, as long as each Dollar carries a number which can only be used once (something similar to Apple pay). It will keep the banks honest, and hacking will not be a problem. Redeemable digital currency will carry the gold standard and the Federal Reserve could be returned to private hands. This time however, let the separate states form an oversight body and keep the federal government out of the peoples currency.
            The added benefit consists of the fact that with a gold standard currency, the American people are again able to save for old age or medical emergencies.

          • Rich A

            Think about it. Right now the people making money are the early investors, miners etc. If a tiny transaction fees were used to support gold vaults worldwide whose only purpose was to hold metals and transact exchange in real physical,paper and blockchain precious metal coins we could have a banking system that would not be controlled for the prophet of oligarchs and politicians and yet be able to transact worldwide commerce. Checking accounts,crypto,physical,and anything else you can imagine. The currency would be stable and savings would maintain value throughout ones life and not be eaten (robbed)away by inflation. This is what is needed. Its really not that complicated. Nor should it be.

    • georgesilver

      Just buy coins. They are easily weighed and measured.

  • jacob

    I think the “money for nothing” phase is receding for Bitcoin and other cryptos, with occasional spikes to the contrary. If governments weren’t hostile to it, Bitcoin would rise in value against major currencies. But governments are hostile. They don’t want their tax farmed populations escaping overt and inflation taxation. British prime minister May fired an early salvo against cryptocurrencies. Governments may get tougher. I think their easiest way to rein in cryptos is through laws that monitor, restrict and tax their conversion to legal tender, and through IRS regulations requiring intrusive reporting of crypto income discouraging businesses from dealing in cryptos. That would put cryptos in a straightjacket. Governments still control the transactional tollgates.

    Governments already suppress the price of gold and silver through massive naked? shorting by connected banking interests. They put the kabosh on barter clubs 40 years ago dispatching the IRS to ferret out non-reporters. People trading goods and services with cryptos and avoiding scrutiny will live in a small financial universe.

    So cryptos are an good crap shoot, but not an easy call.

    • Great points. People really haven’t been investing, they have been speculating.

    • But, the more people accept crypto on the open market (in shops, online, everywhere), the more crypto doesn’t need to be translated to ‘legal tender’ anyway right? I think crypto is going to be fine in the long-term, for that reason.

      People will gradually be able to assign *real* value (meaning usable value) to crypto itself, and hopefully things like bitcoin stabilizing into a gold-like stable commodity in the long-term.

      Why don’t we just create grocery chains that support bitcoin as new disruptive businesses that are future-facing and be done with it?

      It’s an OPEN MARKET. 🙂

  • Doc

    Firstly, I believe gold and Bitcoin serves different purposes so I can’t see why you would have to put them against each other.

    Secondly, my personal preference should be of little importance, as I believe the most important issue is that people should be able to decide what money and means of exchange they want to use, at their own expense.

    It seems people that call themselves libertarians seem to forget this and turn from gold bugs into gold bullies, or Bitcoin bullies.

    • Of course. People should certainly be able to choose themselves. Unfortunately many do become bullies instead of just openly discussing their positions.

    • TPartyOn

      doc Actually, it appears there are far more anti-gold bullies berating non-crypto investors for not buying into their ponzi scam (so they can benefit as “dumpers”.)

      • Doc

        Sure, numbers might be like that. I just have an issue with libertarians who think they have a solution worth imposing on the rest of mankind. That makes them no better than the average politician.

  • The problem with all cryptos is that they are 100% dependent on the internet and electronics to function or even exist . Think about that fact and you may not have much confidence as it can all be hacked and has been , more than once. And if electronics or the grid should fail then what ? Also how many scams have already been exposed in bitcoin and others ?

    No doubt a few people have made some serious money , but they are few and going forward there will only be more ways to hack not less. Many got rich with tulips before they all failed as well ! It is just cyber digits. Although so is USD ?

    • It’s not much less real than gold when you think of it. We’re just collections of atoms ourselves, after all. If something works often enough and is accepted by other people, why be afraid of it?

      I know gold is more enduring and has a proven track record that digital blockchain hasn’t in any way compared to it…but if we embrace the transience of our nature, maybe we’re being more realistic again in turn.

      • To me there is a very big difference between a real physical phenom and an electronically created idea ? One is easily manipulated via internet schisms, the other is a bit more stable because it is a physical item. The main issue is the metals have been around for thousands of years. That is credibility in a million ways.

        How many times have the block chains been scammed already ?

        • It’s a good thought. I guess we’re early days. I think blockchain’s immutability in its purity (i.e. cryptography, i.e. mathematics) is as reliable as an elemental metal on earth.

  • Bischoff

    Problem with bitcoin is the fact that it is a currency only. While gold is a very poor currency, it is money and the only thing that is money.

    What makes gold money…??? Gold is the commodity with constant or nearly constant marginal utility. Gold is the standard in measuring value. Due to its physical and chemical characteristics, gold is the ideal store of value.

    What is meant by value…??? Value is derived from human exertion applied to or on natural resources to produce a good or product.

    Bitcoin maybe a means of exchange, I.e. a currency, but it is not money nor a store of value. If you want to make bitcoin money, the only thing that needs to be done is to make bitcoin redeemable for a specific amount of gold.

    • jacob

      Certain cryptos do exactly that: redeem for a specific amount of gold.

      • Bischoff

        If cryptos are redeemable, how do cryptos come into existence….????

      • TPartyOn

        jacob Name one.

  • The MtGox exchange scam and the investors losses should be enough motivation to keep clear from the BTC scheme. Possession of Physical PM rules the game anytime….

    • MoneroIsFungible

      Incorrect. Investors or regular users should hold Bitcoins in their own wallet – not hosted on an exchange. The idea in crypto is to be your own bank – like to hold your gold in your hand and not just a certificate.

  • Chemist

    If they continue to make rapid headway with quantum computing then decrypting cryptocurrencies might become trivial at some point. That would certainly have an impact on one’s cryptocurrency portfolio.

    • Bischoff

      The simple question is whether you want a currency based on the “quantity of money theory” or whether you want a currency based on a standard which measures value. If you want the ladder, Gold is your standard of measure.

      • Chemist

        Indeed!

      • MoneroIsFungible

        the idea is to have multiple competing currencies. this is antifragile and good. also bitcoin does have a competing currencies crypto market. changing to quantum resistant algorithm is possible and will be done.

  • My Own Life

    I was reading along with the author until they disclosed their association with Stansberry.
    I recommend readers click this link for a sample of what this outfit has done to the investing public over the past few years:
    http://incakolanews.blogspot.com/search?q=stansberry&max-results=20&by-date=true

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