gold vs bitcoin vs us dollar - what's the deal

Never been into the whole bitcoin story, I don't get it and don't care to get it, sure people will become filthy rich by holding it and eventually dumping the bag on people while everyone scrambles to get out, but it'll never be a real store of value or serve society in any meaningful way, just isn't gonna happen sorry.

But --- I also don't understand guys who tout gold as some incredible store of value, like it will protect you from financial uncertainty and collapse.  Like Peter Schiff will talk about gold as some savior when the financial system struggles or collapses due to rampant inflation, but what are you gonna do with this gold in that scenario?  what value does gold inherently have in that situation?  if the financial system goes down or it gets to the point where everyone piles into gold as a "safe store of value" then what do you do with that gold?  no one is going to trade you some physical gold for food, water, or supplies, it has absolutely no value on its own.  if you truly believe the system is going to somehow collapse then all you should to do to prepare is buy supplies and some rural land, owning physical gold will never matter in that sort of scenario.   

-- quick caveat, i'm not saying this scenario is going to happen, but this is what I hear from guys shouting about how great gold is.  that the system is broken because of inevitable inflation and continued geopolitic uncertainty and that will cause people to buy gold as a store of value --

Like Schiff will talk about gold being the true "real money", what?  what does that even mean?  how is it any more real than the us dollar or bitcoin then?  in our society they all just serve as a medium of exchange in an agreed upon transaction between two parties, there is no "inherent value" to gold, the us dollar, or bitcoin.  their value is only derived from the understanding that the person receiving the gold, us dollar, or bitcoin will then be able to use it in a future transaction with another party for another item or service.

If people like schiff or bitcoin-pumpers think the financial system is so doomed, they should just be buying supplies or whatever they think they'll need in the "collapse" scenarios they always talk about.  if the financial system collapses or short-circuits because of inflation like they seem to think then there will be no reason to have any currency at all - just buy food, water, shelter, supplies, etc. if that's the case for you 

Comments (30)

 
Feb 19, 2021 - 6:24pm

I have owned bitcoin for a while (speculatively) and do not own gold. Also own some ethereum but that was pretty much pure gambling since I don't really follow it as closely. Overall I can see the arguments both ways and I think a lot of traditional investors struggle with it since you can't really point to any real intrinsic value which seems to kind of be what you're saying.

I think of it as a venture-type bet on widespread adoption, and thought there was a lot of upside potential while recognizing I could lose it all. More specifically I found it compelling because (in this order):

  1. We're still in the process of it gaining widespread institutional adoption, which combined with a finite supply should put upward pressure on the price. I'd say this is 99% of the reason why it's moved meaningfully recently.... For context we have a good number of clients buying multimillion dollar slugs of BTC as a long-term position now that it's available at our custodian. I think when wealthy people and institutions are jumping in it makes this feel much less like a fad and more like it's here to stay.

  2. I am nervous about the long-term viability of the USD as the global reserve currency and thus would prefer not to hold all my wealth in USD. Never been compelled to own gold given relatively little upside potential and I think Bitcoin likely has more room to run given (1) above.

  3. Theoretically given its decentralized nature Bitcoin could be a hedge against geopolitical uncertainty though I don't think you could say this is true so far looking at how it has historically traded. I'm a bit of a doom and gloom type of guy so this thesis resonates with me though I recognize it's entirely possible it never will materialize.

FWIW if we enter a risk off environment, I think gold will hold up much, much better than Bitcoin.

 
  • Prospect in IB-M&A
Feb 19, 2021 - 7:42pm

The recent pump in Bitcoin price is nothing but a speculative wave fueled by Elon Musk tweets imo. The Bitcoin network has become highly congested, with fees of about $5 per transaction making it unusable for small purchases of goods and services. Further, Bitcoin is not fungible, making it easily trackable: anyone can follow the money and see how many coins are held by any address on the blockchain. If you take into account all these factors, you realize that Bitcoin is now nothing more than a speculative asset: people who were using it to buy things have switched to other cryptocurrencies, and the only remaining buyers are the dumb money (even your rich clients) who bought one or two years ago - that is, ten years too late - and nevertheless think they'll make bank.

 
Most Helpful
Feb 19, 2021 - 8:25pm

Legitimate arguments and I hear you loud and clear, but... 

The recent pump in Bitcoin price is nothing but a speculative wave fueled by Elon Musk tweets imo.

Bitcoin was already at like $40k when Tesla announced its purchases.  If you're saying prior Elon tweets fueled the rally, I guess agree to disagree on that one.

Further, Bitcoin is not fungible, making it easily trackable

Bitcoin is traceable, which I suppose makes it not technically fungible?  There's been a lot of commentary around that (I'd note that a lot of the people making a big deal of it are those who are invested in/starting other cryptocurrencies so probably are apt to hype up the issue).  So sure, by the literal definition of the word, you could make the argument that a clean coin is more valuable than a "dirty" (not sure how to phrase this) Bitcoin, but let's be practical.  For all intents and purposes, Bitcoin is fungible.  Also I fail to see how this highlights that we're in a speculative bubble? 

I would also argue that as Bitcoin gets more institutional adoption, this becomes less of an issue.  When most people are buying it via Coinbase, Morgan Stanley, Fidelity, Schwab, whoever, my guess is fewer and fewer "dirty" coins will be in widespread circulation.  I guess this runs counter to the whole decentralized nature of Bitcoin since now you have gatekeepers involved but frankly, I don't think that's why people own it these days and I think the Libertarian thesis for owning Bitcoin isn't why most current holders are invested.  If you truly want a decentralized currency that has no controls around that stuff, you'll have to stick to the more esoteric ones that (IMO) don't have much of a future or will get squashed by governments as soon as they start to gain traction. 

I also think if you let Bitcoin continue to be an easy currency to use for illicit purposes you have a much higher likelihood of government intervention causing the price to plummet.  Personally, I'll take the tradeoff of being less fungible than heightened risk of the U.S. coming out and banning it completely because there aren't controls that serve as a disincentive to illegal uses, etc.

The Bitcoin network has become highly congested, with fees of about $5 per transaction making it unusable for small purchases of goods and services.

Fine, but I don't think I've seen any real thesis around BTC price that is centered around an ability to use it for purchasing goods and services.  I don't view it as a currency as much as a digital store of value.

people who were using it to buy things have switched to other cryptocurrencies, and the only remaining buyers are the dumb money (even your rich clients) who bought one or two years ago - that is, ten years too late - and nevertheless think they'll make bank.

If you bought Bitcoin 1-2 years ago you've made close to a 10x return depending on your entry point, not sure what your definition of "bank" is but I'd say that was a good buy?     

 

I guess I struggle to see how increasing support from well-regarded and sophisticated investors is anything but a positive for it.  To name a few: Ray Dalio, Jeff Gundlach, Paul Tudor Jones, Stan Druckenmiller, in addition to quite a few of our "dumb money" clients (a few of which are 9+ figure PE/HF managers or otherwise well-known institutional investors, so they're much more sophisticated investors than you and me).  I agree that it certainly has blown up and could be due for a meaningful drawdown, but at this point I am inclined to say BTC is here to stay.  Whether or not it truly replaces gold like some claim is another argument, I guess I just wouldn't completely dismiss that as you have here.  

 

As I said, I think it's speculative, I just don't think that the primary arguments against Bitcoin are actually related to the intricacies around its ability to be used as a real currency for goods and services, or whether or not it's exactly fungible in the most traditional sense.  IMO the biggest risks are government intervention or a widespread selloff that kills any future enthusiasm around it.  Gold is only good as long as people say it has value, the same way Bitcoin is.  Bitcoin is just earlier in its life so more susceptible for sentiment to turn the wrong way.

 
Feb 19, 2021 - 10:13pm

In my view buying bitcoin is essentially a bet that this will be the digital gold. Just like gold there's no need for it to become a stable currency that everyone uses for every day transactions. While gold has a beauty to it Bitcoin has no storage costs and can instantly be converted into cash.

That's said I can also see the argument the bitcoin is the digital tulip. To control for that risk I only have a $5000 position in it, might increase it to 10,000 at most but not sure yet

 
Feb 20, 2021 - 12:18pm

The further I go down the crypto rabbit hole, the more appreciation I gain for our actual, current financial system. Its technical capabilities vastly exceed the capabilities of Bitcoin and other cryptocurrencies.

The Bitcoin "store of value" argument is a cope for its incapacity to be a widely used currency. 

Bitcoin's limits on block size and speed of block creation generate a transaction limit of maybe 5 per second. That in turn causes high fees, since you need to pay the miners a price to get your transaction into one of the limited available slots.

If the block size were increased and/or spacing decreased, the number of transactions would increase. But then the blockchain would grow huge. It's still only a few hundred GB- small enough to store on a home computer- which allows the network to remain decentralized. If the entire world's Starbucks purchases go onto the blockchain, its size will increase and only big datacenters will be able to store it. There goes the decentralization.

Maybe the BTC price will keep going up, but crypto still needs some further technological breakthrough before it can actually compete with the status quo. It's not just a matter of public adoption.

 
Feb 20, 2021 - 9:20pm

ResiMan

The further I go down the crypto rabbit hole, the more appreciation I gain for our actual, current financial system. Its technical capabilities vastly exceed the capabilities of Bitcoin and other cryptocurrencies.

-

"If you always put limits on everything you do, physical or anything else, it will spread into your work and into your life. There are no limits. There are only plateaus, and you must not stay there, you must go beyond them." - Bruce Lee

 
Feb 20, 2021 - 12:54pm

Can someone elaborate because I'm genuinely curious: many Bitcoin enthusiasts point to the fact that there is a "limited supply" of Bitcoin which gives it value as opposed to fiat currency because you can infinitely print. However, can't you just keep splitting up Bitcoin (halving), which is basically no different? Once again, I know jack shit about crypto so I would love if someone who knows more than me can explain.

 
Feb 20, 2021 - 1:11pm

The actual fundamental unit of the BTC currency is the Satoshi, which is one hundred millionth of a Bitcoin. At today's price, one USD cent is worth 17 Satoshis.

Also, "halving" has nothing to do with the divisibility of the currency. Its a term for the reduction in reward that miners earn for generating a block. The reward is cut in half every four years.

 
Feb 20, 2021 - 9:10pm

There's so much to unpack here that it's just impossible to hit on it all. The fact is, I'm not aware of any examples of a deflationary currency (which BTC would be with its 21 million cap) in all of history. Commonsense tells us that would hurt the economy as it would lead people toward hoarding their currency (BTC) rather than spending it, but who knows? A lot of time reality is counterintuitive. But it's certainly a concern. 

My single biggest concern with BTC as a currency is the fact that the governments of the world can simply ban transactions in BTC--and they would be very much inclined to do so. Most Western democracies run regular deficits and need to issue new debt regularly, which would be much more difficult without control over currency supply. And it would be quite simple for the governments of the world to ban crypto transactions. All they would have to do is shutdown the online exchanges. The government could make your vast holdings of crypto currency worthless in the blink of an eye.

Array

 
Feb 20, 2021 - 9:27pm

Memberberries

And it would be quite simple for the governments of the world to ban crypto transactions. 

Banning something doesn't mean that it still won't occur on the black markets. 

"If you always put limits on everything you do, physical or anything else, it will spread into your work and into your life. There are no limits. There are only plateaus, and you must not stay there, you must go beyond them." - Bruce Lee

 
Feb 20, 2021 - 12:57pm

OP's just jealous he's missed out on all the gains.

[quote]The HBS guys have MAD SWAGGER. They frequently wear their class jackets to boston bars, strutting and acting like they own the joint. They just ooze success, confidence, swagger, basically attributes of alpha males.[/quote]
 
  • Analyst 1 in S&T - Equities
Feb 20, 2021 - 12:59pm

I think BTC has become a like it or not you need exposure scenario. At some point nearly all institutions will have some allocation there. I think over time it will just become apart of a diversified personal portfolio. 

 
  • Analyst 1 in S&T - Equities
Feb 21, 2021 - 12:30pm

I know the basics of tulip mania, but I don't think it would be as rubber stamped as BTC is, adjusted for the times of course. One generic example of the rubber stamping: Tesla now has it on their BS which means the equity holders own it as well. I think regulation may even help BTC in this regard.

Apart of the reason I am long is because I needed to turn a significant part of my equity portfolio into cash for an expected life event which didn't happen. Now I'm sitting on a bunch of cash and need yield so I've allocated a bit to BTC, an amount that I'm comfortable losing. I'm very new to BTC, but I think we're just scratching the surface when it comes to crypto. Some of my friends who have done very well for themselves (quit IB 5-8 years ago) are explaining to me how they've been generating wealth with crypto and it's way beyond just holding or even traditional market making. I think that the reasons I went long are: trying to get some yield considering my cash position, belief that it is going to be a 'real' asset class that is here to stay, and genuine curiosity. What else helps in my mind is the fixed amount. I'd be less comfortable if the outstanding could double whenever.

 
Feb 21, 2021 - 6:36pm

EatClenTrenHard

Just curious, if portfolios were a thing in the 1600's, would the tulip have been a part of of the standard diversified portfolio too? If yes, well.. we know how that ended. If no, curious why you think this time it's different. Genuinely intrigued on reasoning here from those who are long bitcoin and follow similar logic. 

History usually doesn't repeat itself exactly though it often rhymes. Tulip bulbs were an actual thing of value because the tulip was a luxury item that was in demand, hence it had a cash flow intrinsic in it. The speculative bubble pushed prices up well beyond intrinsic values. BTC is more of a speculation on a future industry, which is non-fiat denominated currency, and BTC is the current odds on favorite to represent that industry.

In other words, I don't see there being any real comparison of tulip mania to blockchain mania. They are totally different assets with different reasons pushing their prices. Tulip mania is much more like the mid-2000s speculative real estate bubble. 

Array

 
Feb 20, 2021 - 10:28pm

Has anyone read up on Tether(USDT) ? I almost turned a  believer (bought at 18k only to sell out after a few weeks at 35 k).  I think Tether has become the equivalent of Federal Reserve for Bitcoin - the pump can go on for longer than what one would expect but I am pretty sure it will all come crashing down. So participate in it as a speculative asset all that you want but never ever fool yourself into thinking that it's a store of value

 
Feb 21, 2021 - 1:05pm

Yeah I own a decent bit of Bitcoin and that's probably my biggest concern and is holding me back from allocating a larger portion of my portfolio to it. From what I've read, I've seen mixed arguments on whether Tether is fueling the demand for (and price of) BTC or the demand for BTC is fueling the tether issuance. I honestly don't know which is the truth.
 

I think it's pretty clear that tether is not 100% backed by USD as they originally claimed (and have since walked back), but they're probably more than sufficiently backed by a mix of USD, BTC, and other crypto. This obviously seems somewhat circular and I'd never own tether myself, but I'm unsure of how it will ultimately impact the price of BTC assuming tether eventually collapses, which is certainly possible. 
 

Anyway, I still believe in BTC and genuinely think it'll go to $500k or $0 at some point so I think everybody should have at least a small allocation to it. Basically I just think of it as the eventual successor to gold as a store of value / disaster hedge. 

Start Discussion

Popular Content See all

This Fucking Sucks
+48OFFby Prospective Monkey in Investment Banking - Mergers and Acquisitions">Prospect in IB-M&A
Why would any associate+ banker choose a BB over EB?
+29IBby Intern in Investment Banking - Mergers and Acquisitions">Intern in IB-M&A
PE isn’t the best way to get into b-school
+26BSCHby 2nd Year Associate in Private Equity - LBOs">Associate 2 in PE - LBOs
Share a day that looked like a Suits/Billions episode
+20IBby Intern in Investment Banking - Generalist">Intern in IB - Gen
What's Wrong with Warburg Industrial & Business Services?
+16PEby 1st Year Analyst in Investment Banking - Mergers and Acquisitions">Analyst 1 in IB-M&A
Slow Weeks?
+15IBby 1st Year Analyst in Investment Banking - Mergers and Acquisitions">Analyst 1 in IB-M&A

Total Avg Compensation

February 2021 Investment Banking

  • Director/MD (9) $911
  • Vice President (31) $349
  • Associates (158) $231
  • 2nd Year Analyst (97) $151
  • Intern/Summer Associate (92) $144
  • 3rd+ Year Analyst (23) $145
  • 1st Year Analyst (366) $131
  • Intern/Summer Analyst (304) $82

Leaderboard See all

1
LonLonMilk's picture
LonLonMilk
98.5
2
Jamoldo's picture
Jamoldo
98.4
3
Secyh62's picture
Secyh62
98.3
4
CompBanker's picture
CompBanker
97.9
5
redever's picture
redever
97.8
6
frgna's picture
frgna
97.6
7
Addinator's picture
Addinator
97.6
8
NuckFuts's picture
NuckFuts
97.5
9
bolo up's picture
bolo up
97.5
10
Edifice's picture
Edifice
97.5