Gold & Bitcoin, Silver & Ether – The argument for all.

Posted | 28/10/2020 / Views | 2928
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As Bitcoin continues its tear of a bull run we inevitably start to get the cries of ‘Bitcoin will replace gold’, ‘drop gold buy BTC’… This agenda repeatedly misses the point that the two assets and their respective broader asset classes can and arguably should co-exist in a portfolio and often glosses over why both are fundamentally needed in a portfolio.

Year to date both big cap crypto and precious metals are strongly up as one would expect in a recession.  In AUD, Bitcoin is up 94% since the beginning of the year, Ethereum up an incredible 207% amid the DeFi revolution, gold is up 24% after its August pull back (up 33% at that time) and likewise silver is up 36% despite the August pull back when it was up 61%.  By comparison the ASX200 is down over 9%, property prices generally lower and cash in the bank earned you pretty much nothing amid record low interest rates.

There is a convergence of global phenomena all presenting an incredibly bullish environment for these new and old but ultimately collectively hard monetary and utility assets.

The world is facing the confluence of a global recession exacerbated by but not started by a pandemic that is both economically debilitating but also one structurally changing human behaviours.  We are at what appears to be the terminal end zone of the greatest credit cycle in history with record amounts of and unprecedentedly cross collateralised debt. We are at a critical juncture in the Climate Change ‘debate’ where there is a now universal push to renewable energy that will fundamentally challenge the world’s biggest commodity, oil, and the ramifications that will have on the US petrodollar and need for alternative sources of energy.  We are seeing play out right now, the first major superpower stoush, between the US and China, since the Cold War but this time between the world’s 2 biggest economies in a globalised economy.  We are seeing social unrest borne of a worsening inequality gap and the impacts of the aforementioned globalisation.

The impacts this all has on precious metals and large cap cryptocurrencies are many fold.

Gold, silver and Bitcoin are arguably all be driven by the debasement of currencies around the world and the accompanying surging debt levels as governments and central banks try to stimulate the world out of the recession.  That these governments and central banks are doing so through the generation of more debt when debt got us into this mess would be laughable if not so deadly serious.  Central banks have been record buyers of gold and collectively adding to gold reserves every year since the GFC as they prepare for the inevitable unravelling of their own bubble (a glimpse of which they got in the GFC). It is also no coincidence this build up of gold has happened amid the geopolitical tensions and the US militarising the now threated USD.  This is the same USD they have debased at an unprecedented pace.  Gold on the other hand increases in supply by less than 2% per year and getting slower.

Bitcoin was actually created out of the effects and learnings of the GFC.  The creator saw the rampant, centralised, politically motivated financial cause and response of this crisis.  Bitcoin was created to be the perfect finite, decentralised, politically agnostic, peer to peer ‘money’ for the every man.  No central bank could create more of it, no intermediary bank was needed to transfer or store it, no government or central body controlled it, and its supply halved around every 4 years.  It makes perfect sense it should rally in this environment not just from a ‘hard monetary asset’ wealth preservation sense, but also as a beacon for those left behind as the rich got richer in financial instruments outside their reach.

However Bitcoin is a $250b market and only a decade old.  The world’s 5000 year old, proven, $2 trillion (investable) hard monetary asset, gold, is as relevant and perfect as a preservation of wealth and will increasingly attract ‘big money’ and central bank money that is just not ready for Bitcoin. 

Silver wears two hats in this environment.  From a monetary metal sense, the math says it is currently the more undervalued in the gold silver ratio and hence will attract the bid in that sense. It is also seen as the more attainable metal for the everyday person.  From an industrial use sense it will benefit from demand for solar panels amid the renewable energy push and electronics as the world increasingly moves to electronic automation.

Ether drives the Ethereum network and Ethereum is driving the DeFi movement.  That central bank agenda of driving currency yields to zero (to get you to buy risk assets), a subsequently precarious centralised banking model that repeatedly gets caught out for fraud, counterparty risk in a complicated cross collateralised and centralised financial system, and the growing distrust borne of that social economic dislocation is seeing Decentralised Finance (DeFi) explode and threaten the very existence of the traditional banking and finance house model.

Gold and bitcoin, Silver and Ether, all have very compelling arguments for belonging in your portfolio.  There is no this or that one, they each have their own reasons that are not mutually exclusive.  They are all money too.  You can seamless swap between them at Ainslie Wealth without touching AUD or its ‘system’.

A reminder of our trademark – Balance your wealth in an unbalanced world.