On Sunday evening, I had the privilege of attending a small dinner with a handful of financial market gurus, plenty of whom had more experience in financial markets than I have years on the planet. And for the most part, they are all gold bugs of varying degrees.
“Gold bugs” are those for whom gold is less of an asset class, and more a belief system… for them, gold is the only real form of money – one which cannot be debased by profligate central bankers who can print more paper money with the snap of their fingers.
I was fortunate enough to sit next to one of the world’s pre-eminent gold authorities, an individual who’s up there with the likes of investment gurus and financial commentators like Jim Rogers, and Jim Rickards, author of 2016’s The New Case for Gold.
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On bitcoin and bit bugs
Somewhat inevitably, discussion turned to bitcoin. I shared what I believe is one of the most overlooked factors affecting bitcoin’s future prospects…
You see, the mistake that the likes of Jamie “It’s a Fraud” Dimon and Warren “It’s a mirage” Buffet make when it comes to bitcoin is that they fail to realise that bitcoin isn’t some digital trinket. And it’s not a fad or a craze (although there is plenty of speculative participation).
Rather, when you scratch beneath the surface, you’ll find that bitcoin is an asset that has not only survived but thrived, because at its core sits a community of what I’ll call “bit bugs”.
The T.V. talking heads, newspaper articles and mainstream media frequently overlook the existence of this community and its conviction. And once you spend any time in the bitcoin community (in chat groups, internet forums, conferences, meetups and social media), you’ll see that bit bugs share many traits with their gold bug cousins.
First, as mentioned earlier, both “bugs” adhere to investment rationales that are underpinned more by a belief system, an almost religious affectation, that outweighs any cold, hard analysis. You will never, ever hear a gold or bit bug say you shouldn’t own gold or bitcoin respectively. A real “bug” never capitulates.
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If the price goes down? Then, “Buy more, it’s cheap!”.
Price goes up? “I told you so, if you don’t own some then you should!”
The second commonality is the overlapping shared political philosophies of libertarianism and anarcho-capitalism – this might sound scary but it is just an advocacy of individual sovereignty over the state, i.e., personal liberty as a core principle.
And the third commonality is a deep scepticism (to put it mildly) towards government and central banks.
Both gold and bitcoin camps are deeply cynical when it comes to the motives of banks in general and central banks in particular, and both will point with disgust to the waves of money printing and trillions of dollars of fiat debasement that was carried out in the wake of the Global Financial Crisis as a key reason for owning their respective favourite assets.
As for bitcoin, one only needs to read the second paragraph of Satoshi Nakamoto’s original communiqué that accompanied the release of the bitcoin whitepaper in 2009, the original “road map” for developing the Bitcoin blockchain:
“The root problem with conventional currency is all the trust that's required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts.”
Where they differ…
Where the bitcoin and gold worlds collide, and in fact assume diametrical opposition to one another, is here: Gold bugs see gold as a physical, tangible and real asset.
You can pick it up and feel its satisfying weight in your hand. Gold has unquestionably been money for thousands of years.
Bitcoin? That’s just a piece of code. The government will eventually close it down – right?
As for the bit bugs? Well, bitcoin is the ultimate in freedom of asset ownership. The government can’t confiscate it from me as it did to owners of gold in 1933 in the U.S. under Executive Order 6102.
I can cross national borders with bitcoin in my possession, on a USB-stick device, a piece of paper… or if I can memorise my private key, with no physical object in my possession of any kind.
Whether my bitcoin is worth US$100 or US$100 million, it makes no necessary difference to how I move and store it (which is clearly not the same with gold). I don’t need a trusted middleman to send it from me to you, and I can send it around the world, securely, in a matter of minutes.
And what should you own…
…a little bit of both. Like I said a couple of months ago:
“Gold has stood the test of time as a medium of storing value. For that reason, it deserves a place in your portfolio. Bitcoin’s time, on the other hand, 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.”
But don’t underestimate the bit bugs. The price of bitcoin may have gone from US$600 to US$4,000 over the past 12 months - a fact that understandably garners the most attention - but there have been five corrections of 25 percent or more along the way, including in the past week or so a correction of 40 percent. Yet bitcoin endures for the time being. The bit bugs are nothing if not resilient...