What drove the Friday bitcoin surge?
Just as Real Vision ended its two-week series comparing bitcoin and gold on Friday, bitcoin surged, at one point advancing more than 33% from its mid-week lows. As of Saturday afternoon, October 26th, bitcoin was trading just over US$9,000 per bitcoin. The Real Vision series would have been watched by many influential institutional investors and traders. While there is no way of knowing if the series spurred the bitcoin buying, some of the factors revealed in the episodes could well be driving the move.
A pair of interviews on October 16th set the stage. Simon Mikhailovich, founder of The Bullion Reserve, argued that only gold is a true haven against financial calamity. Probably one of his most compelling arguments against bitcoin was its privacy risk. He claims the permanent state of records on the blockchain, which is the backbone of bitcoin, could expose users to the perpetual risk of audit by governments.
Mikhailovich on the case for gold
Countering Mikhailovich was Robert Breedlove, CEO and CIO of Parallax. He made the case for bitcoin in the context of the history of money and global monetary systems. He believes bitcoin is the "hardest" form of money in existence because of its disinflationary design which involves a diminishing creation rate, also known as halving. As explained by Bitcoin Wiki, this means the number of bitcoins generated per block is set to decrease geometrically, with a 50% reduction every 210,000 blocks, or approximately every four years. In addition, Breedlove argues that bitcoin beats gold on the issue of divisibility. He explains that you can use a portion of a bitcoin to buy goods or services, something that is not viable with physical gold.
Breedlove on the case for bitcoin as a monetary system anchor
The two videos are premium content and require a Canadian Insider Club Ultra or Insider Tracking Advantage Ultra subscription (INK subscribers also have access). Non-Ultra subscribers can get a flavour of the debate in this 12-minute summary version produced early this week called Inside Gold vs. Bitcoin: What Can Save You?
What can save you? Breedlove vs. Mikhailovich
The most persuasive case for bitcoin was found in Raoul Pal's premium interview with an anonymous guest who goes by the name "Plan B." Mr. B is an institutional investor who prefers to remain undercover. A few minutes listening to his assessment of bitcoin, and it is clear this gentleman is not an internet cowboy but a very serious and intelligent market player. He makes the case for bitcoin using a stock-to-flow model which pegged bitcoin's fair value at about US$8,300 near the end of September.
Plan B's stock-to-flow model predicts a higher bitcoin price
However, Plan B's model predicts a much higher bitcoin price down the road as it becomes more scarce in relation to demand. That leads to a multi-billion dollar question. Will the public come to view bitcoin as a monetary asset? In our view, it is a bold bet to assume no. While bitcoin may be overtaken by another cryptocurrency, the risk that it or one of its peers become a dominant monetary asset is not zero. As such, we believe most gold investors need to take the cryptocurrency asset class seriously.
Rule sees opportunity in a blockchain-gold relationship
Indeed, venerable precious metals asset manager Rick Rule seems to be doing just that. In one of the last Real Vision premium interviews in the series, he made the case that blockchain can be used to essentially solve the gold divisibility challenge raised by Breedlove. Rick Rule appears to have the vision that we were hoping would emerge from the gold industry. Distributed gold may yet give bitcoin a run for its money.
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With bitcoin bouncing this weekend, the race appears back on between crypto and gold for dominance as an alternative or hedge to the current monetary system. Fortunately, in this race investors can bet on both horses.