I was asked to give my thoughts on Bitcoin vs Gold so I wrote the following for TheFastlaneForum…
First and foremost, they aren’t the same. They aren’t interchangeable. As you will discover in the following write up, they are more polarizingly different than a super mature dividend stock with an ultra low P/E and a high flying stock like Tesla.
On one side of the spectrum, objectivity. On the other side subjective speculation.
Crypto is an alternative asset class. Period. It isn’t God. It isn’t infallible. It isn’t proven, but it has done very well relative to gold over the last 6 months. Hindsight 20/20, of course I would have rather had Bitcoin than gold over the last 6 months. I would have rather a portfolio full of Tesla stock too. Why? I like money. That said… because I don’t have a crystal ball or time machine, I chose gold to a larger extent, for a reason.
Where I see the two now… Bitcoin has had a ridiculously great run and honestly good job to those of you that captured it. The other one, gold, has shockingly retreated. So what, I’m still up and I don’t need the money.
The fact that they are BOTH a way to keep your money out of the USD are where the similarities start and end. They are radically different.
I will absolutely 100% concede, subjective value theory, which is correct economics, means something is worth what someone will pay for it, and the market is always right. That means a Bitcoin is worth $53,799 USD. It absolutely is. Just like tulips were absolutely worth a year of a Dutch salary at one point in time. Someone sold a Bitcoin today for $53k and someone sold a tulip for a year’s salary at one point in history. It was worth what someone paid.
With a stock, you look at a company relative to its competitors, weigh the headwinds, tailwinds, and expected management decisions. You determine if you subjectively value a stock more than someone else based on actual data and your expectations of the company’s objective performance. If you do, you buy or hold. If you don’t, you sell or you just don’t buy it.
With a commodity, you look at the expected forces on demand, expected forces on supply, and its usefulness to an economy. You buy if you subjectively expect it to become more objectively valuable.
When people start talking about valuations of coins, that is absolute nonsense. There is no relativity. Saying one coin is overvalued or undervalued is finger in the wind, bullshit speculation. The entire concept of valuing a crypto is uncharted territory with no foundational basis other than “I think this will be the future” or “I think that will be the future.”
At its core, gold is a commodity. They use it in shit. It is not unlike oil, copper, grains, water, lumber, whatever. There is objective value to humans in it. But there has also been additional subjective value in its rarity relative to that objective value. That made it an intelligent currency. Exchange is subjective. Use is objective. Subjective value of ANYTHING is inherently speculative.
Every investment lies somewhere on a spectrum. A old stable dividend stock might be more toward the objective side of the spectrum with minimal subjectivity. A growth stock trading at 50x the value of that old stable dividend stock with the same earnings has a lot of subjectivity. Gold skews HARD objective and Bitcoin skews HARD subjective.
Today, the subjective value of gold has coiled, in favor of the hot card table. Make no mistake, the objective value still lies ever closer beneath the surface. There is legitimate valuation data for gold and silver based on supply and demand that considers its commodity uses. Add to that a long history of subjective use as an alternative means of exchange, and you have valuation data to consider.
There is little if any objective value in Bitcoin. It is a creature of only subjective value. Just like the USD. That doesn’t make it shit. That just makes it significantly different.
Now I preface all of these posts with a huge disclaimer. I’m not a crypto bear. I’m a realist. I have more net worth than I feel comfortable slamming into one investment after I licked a finger and told myself that I’m smart. I think decentralized currency is brilliant and an invention that will certainly change the world for the better. With that always, historically, comes growing pains. Whether it be better alternatives, whether it be savage gangster governments. Whatever… Portnoyesque permabull mindset does not make someone smart money. Being able to sleep at night does.
I like crypto. I hate the speculation packaged as sound investment sentiment in the crypto community. If you are comfortable buying stocks at hundreds of times earnings, that is the type of asset you are getting into with crypto. Something heavy subjective and light or absent objective value.
What would I choose today as someone with an actual net worth? I would choose gold with even more conviction than I did years ago. Why? Investing 101, buy low sell high. Gold is frickin cheap right now… and God forbid if bitcoin actually is a house of cards, a lot of anti-dollar liquidity will be searching for a new home.