This is the final part of my series on gold. Bitcoin emerged over the last decade as a new store-of-value asset and has been called “digital gold” by its adopters. Its market cap sits at $730B today versus a market cap of $6.5T of gold that is used as a financial asset (as opposed to jewelry). Ardent supporters of bitcoin, aka “bitcoin maximalists” believe that bitcoin’s market cap will overtake gold’s, making it the world’s primary store-of-value asset. In this post, I discuss my framework for trading bitcoin, how it correlates to gold, and compare gold vs bitcoin as a store of value.
Geo, while I think you make a series of excellent points across the 3 parts of this series, I believe that you may be underestimating just how powerful the government impact can be. as CBDC's begin to proliferate, and I am certain they will be doing so over the next several years, governments will be spending real time and effort to eliminate their competitors, namely bitcoin, and perhaps ether. and while they likely cannot shut down the network, they can absolutely close the exit ramps. enhanced KYC with stricter AML rules and an edict that banks cannot open accounts, or even keep accounts open, if there is a whiff of Bitcoin activity in the account holder's activities is very realistic, and something that governments around the world seem quite likely to implement if they feel they are losing some control on their monetary policy/system. in your chart I might weight the government issue at 3x or 5x and then add things up.
I'm aware that China is far ahead in the game of issuing and trialling CBDCs with a smaller segment of the population, but I'm not sure how far along other developed countries are. My sense is that they are in the development stage but not yet ready to deploy for another few years. Perhaps you have a better sense of what their timeline will be, but my guess is that governments will take longer than expected to develop and roll out CBDCs, and that it will take a while for the public to adopt it, since the traditional fiat system works well enough for the average person. In the time it takes to see CBDCs becoming widely rolled out, we could see multiple crypto cycles.
While I agree that some governments might try to restrict crypto while supporting CBDCs, this is not a foregone conclusion. There is also the possibility that CBDCs make the on and off ramp to crypto even more seamless. The impact and timeline of CBDCs on the crypto system is just too uncertain to affect investment decisions today.
Government rollout of CBDCs will be slow if they even get to CBDC status in the way a CBDC is meant to be deployed. In the US there is an attempt with FedNow, but while that attempts to provide a 24/7/365 instantaneous payment rail, it is far from what a CBDC is supposed to be, in fact, there are many high profile politicians lobbying to ban the idea of a government CBDC (see rep. Emmer). The other major countries are also in various states of limbo with their CBDC visions.
Can US attack the onramps? Sure, they already have with some success (Silvergate/Signature). But will there be a globally coordinated nation-state attack that completely starves off capital flow into BTC? I personally don't see it happening. At the end of the day sovereign nations are self interested and the US influence is on the decline (see Dalio World Order book).
The more likely risk that I see is that Blackrock and the ETF providers holding more physical BTC in their coffers as a way for the US to take control of the network since they are just 2B2F entities that are more or less part of the government. So if Blackrock and others get some sort of giant sum of BTC under custody as retail and the financial advisor community buys up the ETFs, it will be majorly bullish for BTC in short-term, but can put the network at risk in the long term.
I’m long term bullish gold still as I believe central banks will keep pumping liquidity and cutting rates at the first sign of weakness in the economy. At the moment though, gold could pull back as rate cut expectations get scaled back and both nominal and real yields rebound from current levels.
Great read Geo! Thank you for the great 3 part series. It's helped me with my framework with gold as a new investor/trader.
Geo, while I think you make a series of excellent points across the 3 parts of this series, I believe that you may be underestimating just how powerful the government impact can be. as CBDC's begin to proliferate, and I am certain they will be doing so over the next several years, governments will be spending real time and effort to eliminate their competitors, namely bitcoin, and perhaps ether. and while they likely cannot shut down the network, they can absolutely close the exit ramps. enhanced KYC with stricter AML rules and an edict that banks cannot open accounts, or even keep accounts open, if there is a whiff of Bitcoin activity in the account holder's activities is very realistic, and something that governments around the world seem quite likely to implement if they feel they are losing some control on their monetary policy/system. in your chart I might weight the government issue at 3x or 5x and then add things up.
I'm aware that China is far ahead in the game of issuing and trialling CBDCs with a smaller segment of the population, but I'm not sure how far along other developed countries are. My sense is that they are in the development stage but not yet ready to deploy for another few years. Perhaps you have a better sense of what their timeline will be, but my guess is that governments will take longer than expected to develop and roll out CBDCs, and that it will take a while for the public to adopt it, since the traditional fiat system works well enough for the average person. In the time it takes to see CBDCs becoming widely rolled out, we could see multiple crypto cycles.
While I agree that some governments might try to restrict crypto while supporting CBDCs, this is not a foregone conclusion. There is also the possibility that CBDCs make the on and off ramp to crypto even more seamless. The impact and timeline of CBDCs on the crypto system is just too uncertain to affect investment decisions today.
Government rollout of CBDCs will be slow if they even get to CBDC status in the way a CBDC is meant to be deployed. In the US there is an attempt with FedNow, but while that attempts to provide a 24/7/365 instantaneous payment rail, it is far from what a CBDC is supposed to be, in fact, there are many high profile politicians lobbying to ban the idea of a government CBDC (see rep. Emmer). The other major countries are also in various states of limbo with their CBDC visions.
Can US attack the onramps? Sure, they already have with some success (Silvergate/Signature). But will there be a globally coordinated nation-state attack that completely starves off capital flow into BTC? I personally don't see it happening. At the end of the day sovereign nations are self interested and the US influence is on the decline (see Dalio World Order book).
The more likely risk that I see is that Blackrock and the ETF providers holding more physical BTC in their coffers as a way for the US to take control of the network since they are just 2B2F entities that are more or less part of the government. So if Blackrock and others get some sort of giant sum of BTC under custody as retail and the financial advisor community buys up the ETFs, it will be majorly bullish for BTC in short-term, but can put the network at risk in the long term.
Very useful and informative series of posts, thanks.
Geo - please update your thoughts on Gold & miners. Are we likely looking at breaking 2022 lows? Thank you
I’m long term bullish gold still as I believe central banks will keep pumping liquidity and cutting rates at the first sign of weakness in the economy. At the moment though, gold could pull back as rate cut expectations get scaled back and both nominal and real yields rebound from current levels.