Bitcoin And Gold: What’s All The Fuss about?
My partner and I have been managing client’s assets each for over 37 years. Throughout our
investing careers, there have been times when certain assets captivate the imagination, earn the
trust, and yes, even the hype of investors like few things can. The Dot-Com Bubble, the Tulip
Mania, the Pet Rock and Beanie Babies are a few things that come to mind.
Bitcoin and gold are two of the most recent popular “alternative” investments that many
investors are turning to, and which many refer to as a safe haven. Now I’m not saying that the
Beanie Baby craze was a perceived safe haven but all of these “investments” have something in
common, namely, they are worth only what someone is willing to pay for them.
In the case of Bitcoin and gold, their appeal largely stems from the perception that they’re inflation-proof or
crisis-resistant but their value is truly only based on what the next person is willing to pay for it.
Think about this for a moment, what is the book value, growth rate, earnings or dividend yield
for either of these assets? Since obviously neither of these have them, how does one value them?
Bitcoin has often been called “digital gold,” implying that it offers the same stability, value-
retention, and inflation resistance as its physical counterpart. However, this comparison misses
some key issues:
- Bitcoin’s Extreme Volatility: this is one of the biggest drawbacks of Bitcoin. Over the
past few years, Bitcoin’s price has swung dramatically from $20,000 in late 2017 to
below $4,000 in early 2019, then to highs of over $60,000 in 2021, only to drop again to
under $16,000 in 2022 and then hit an all-time high after the recent election of almost
$90,000. While price swings are natural for any asset, Bitcoin’s fluctuations are
particularly extreme, making it unpredictable and unreliable as a safe-haven asset. - Regulatory Uncertainty: Bitcoin along with all …
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