Doc’s note: If you’ve invested in Asia in the last few decades, you’ve likely heard of Peter Churchouse. Peter has lived in Asia for four decades. He was even the chairman of the Hong Kong General Chamber of Commerce’s Real Estate and Infrastructure Committee.
He’s about as connected as it gets when it comes to Asia. Recently, my publisher Stansberry Research started a joint venture with Peter called Stansberry Churchouse Research. Today, we’re sharing an essay from their group. If you’ve ever wondered whether you should own gold or bitcoin, read on…
Goldbugs 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 goldbugs.
But bitcoin fanatics come pretty close. These folks believe that this decentralized digital currency is the ultimate means of easily transferring value without the need for a centralized entity, intermediary, or central bank. Bitcoin is a libertarian dream.
Now, given that goldbugs 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 cats and dogs – 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’d recognize, 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 e-mails travel back and forward within the group, I drew a few conclusions.
Goldbugs don’t like bitcoin.
Most of the guys (and they’re almost all men) on this e-mail list are grizzled investors, and they like their gold. To be precise, they like 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, decentralized 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 goldbugs, 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 30 seconds to the average guy on the street.
That problem still exists today.
Yes, you can just say 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 step forward 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 fully understand 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 e-mail thread succinctly put it:
“I prefer a currency that has survived 5,000-plus 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 goldbug demographic is typically more toward 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?
The difference between 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.
There’s big demand from Asia.
Currently, the largest cryptocurrency exchange by trading volume is located in Asia. And six of the 10 largest cryptocurrency exchanges globally are based in Asia.
Chinese bitcoin miners account for around 60% of total bitcoin-mining power.
When it comes to physical gold (not the digital stuff), China and India are huge players, consuming over half of the world’s annual demand for gold jewelry.
Love of gold is a big reason why Asian countries have embraced the digital version.
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. It’s locked up, out of sight and out of mind. Gold will always be there… As for bitcoin, I can’t say that with 100% 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 market cap.
Gold has stood the test of time as a medium of storing value. For that reason, it deserves a place in your portfolio. On the other hand, bitcoin’s time 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.
Editor, Asia Wealth Investment Daily
July 17, 2017
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