Drop Gold, Buy Bitcoin?

The cryptocurrency company Grayscale has launched a multi-million dollar marketing campaign imploring investors to drop gold and buy bitcoin. It is a slick video and the campaign is getting plenty of attention, but does it make any sense?

The “Drop Gold” campaign kicked off Wednesday and features a 39-second commercial that shows a man and woman who race frantically around a financial district while people around them are weighed down by bulky gold. It asks: “Why did you invest in gold? Are you living in the past?”

https://fast.wistia.net/embed/iframe/ts4i7t6pop

The ad says that “gold shouldn’t weigh down your portfolio.” But that doesn’t make much sense.

Sure, you can cherry pick dates when gold was down while stocks went higher. But if we go back to the start of 2000, the gold price is up 348%, while the S&P 500 is up just 102% in the same time period.

How exactly is that “weighing down your portfolio?” Gold has outperformed stocks by a factor of more than 3 times! If that is what Grayscale calls weighing down your portfolio, I’ll take some extra weight, please.

Furthermore, gold is an insurance policy for your portfolio and hedge against financial uncertainty. It has maintained its value for thousands of years, while fiat currencies consistently lose their value and usually implode.

The image below shows the purchasing power of the U.S. dollar over time. Since the creation of the Federal Reserve in 1913, the dollar has lost over 95% of its purchasing power.

Gold hasn’t lost any of its purchasing power over time.

Which begs the question… Shouldn’t Grayscale be advocating that investors dump fiat funny money and purchase cryptocurrency? Or dump assets that are in bubble territory, such as stocks, bonds, ETFs and real estate? Or dump shitcoins that were created as pre-mined money grabs and offer no true innovation over Bitcoin?

Wouldn’t it be better to dump depreciating assets than something like gold that has gone up 350% in the past 20 years? Sure, Bitcoin has outperformed gold by a wide margin since it was launched, but gold has been the better performer over the past year. The point is that when looking for assets to dump, there are quite a few worse-performing assets to toss before selling gold.

Grayscale’s “Dump Gold” video goes on to state that gold does not have any utility like cryptocurrency. I am bullish on cryptocurrency and believe that it offers tremendous utility. But claiming that gold has no utility is incorrect and disingenuous.

Gold is one of the most useful minerals mined from the Earth. Its utility is derived from a diversity of special properties. Gold conducts electricity, does not tarnish, is very easy to work, can be drawn into wire, can be hammered into thin sheets, alloys with many other metals, can be melted and cast into highly detailed shapes, has a wonderful color and a brilliant luster. While the primary use is jewelry, gold is also used in electronics, computers, military applications, dentistry, and both the medical and aerospace industries.

Grayscale seems desperate for attention with this new marketing campaign. I believe that gold and cryptocurrency are complementary assets that both deserve a place in any investors portfolio. The allocation will vary depending on the situation of each individual investor, but dumping gold doesn’t seem like sage advice.

There is plenty of crossover between gold and crypto investors, but also plenty of animosity. It seems like Grayscale is tapping into both, but they are going to alienate gold investors that might otherwise consider cryptocurrency for many of the libertarian-oriented features offered.

The Grayscale Bitcoin Trust (GBTC) carries a high premium to the Bitcoin assets it holds. This premium rose to more than 47% in April according to an article in Bitcoinist.com. The current premium is nearly 30%. In addition to this high premium, investors have to pay Grayscale an annual fee of 2%.

The rising GBTC premium may be a good sign for the cryptocurrency sector, suggesting increased institutional inflows. But I suspect a good percentage of those funds are from retail investors that don’t understand how to buy from an exchange or how to set up a wallet.

While I like that Grayscale actually holds “physical” cryptocurrency behind their funds, I believe that investors would be better off avoiding funds like the Grayscale Bitcoin Trust. If the premium continues to slide in the face of increasing competition, investors in GBTC will be leaving profits on the table. Furthermore, investing through a fund introduces third-party custodial risk. While custodial solutions are improving, I still follow the adage: “Not your keys, Not your Bitcoin.”

Grayscale has enjoyed a near monopoly as one of the only ways to get exposure to Bitcoin via a normal brokerage account or IRA. But as a flood of new institutional offerings are launched from Bakkt, TDAmeritrade, eTrade, Fidelity and others, I am guessing fewer investors will want to pay the high premium and fees associated with the Grayscale Bitcoin Trust. Perhaps, this is why they have resorted to attacking gold with such a silly advertising campaign.

Currently, the total value of gold in the world is worth approximately $8 trillion, while the current supply of Bitcoin is worth around $95 billion. The total value of all cryptocurrencies is $176 billion, equating to a 54% market share for Bitcoin.

I believe that the market cap of Bitcoin will eventually surpass the value of the gold market at $8 trillion. This suggests upside of around 80x for Bitcoin in dollar terms.

It also suggests significant outperformance of Bitcoin over gold in the years ahead. But I am not dumping my gold entirely, as I believe it is important to have a diversified portfolio of multiple assets classes. And I believe that gold and quality mining stocks will outperform the S&P 500, bond market, real estate market and most other asset classes over the next decade. So gold is not high on my list of assets to dump in order to increase my allocation of cryptocurrency. In fact, it would be the last assets on my list.

I suspect Grayscale didn’t want to risk offending the gatekeepers of the legacy financial system with a video and marketing campaign that gave better advice to investors…

Dump fiat, dump bubble assets and buy BOTH gold and Bitcoin.

Would you drop gold or fiat first? Vote here:

https://twitter.com/nicoyaresearch/status/1123988559550124035

Dump the FED, dump the bankers and their too-big-to-fail security blankets, dump the crooked politicians, dump fractional reserve lending, dump the surveillance state, dump the military-industrial complex, dump the corporate media, dump the establishment.

Long gold, long Bitcoin, short the bankers.

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