Keeping Up with Frank

The Great Debate: Bitcoin vs Gold

April 27, 2021

It’s no secret that for many years I have been a strong advocate for owning gold in one’s portfolio. Gold has stood the test of time as protection against inflation, the devaluation of currencies and as a hedge against downturns in equities. Historical data proves it every time. I call it insurance against bad things that inevitably happen time and again throughout history. It has been standard portfolio management practice to always own 5-10% of your investment portfolio in gold.

In the era of US dollar supremacy during the 1980’s and 90’s, Wall Street tried to make the case that gold was an ancient relic and no longer necessary. But as we entered the new millennium, they were once again proven wrong as gold went up eight fold over a 20 year period, driven by artificially low interest rates, money printing and a dangerously overly indebted world. So far, so good.

Then about 12 years ago, along came Bitcoin. It initially made its debut as a decentralized payment method working outside the traditional banking system, but when Bitcoin proved to be too volatile, too slow and too expensive as a payment system, the narrative changed to that of a store of value, much like what gold is meant to represent. At this point, although I did not agree, I thought, to each his own.

What eventually got my attention was when a cadre of Bitcoin promoters began suggesting that Bitcoin would eventually make gold obsolete and worthless.  When I scoured  through the dozens of social media postings and YouTube interviews that were relentlessly promoting this new narrative, I ran across Michael Saylor, the famous CEO of Micro Strategies Inc., who had recently converted all of his company’s cash and borrowed more on top, investing it all in Bitcoin. I watched as many of his interviews as I could find and determined he was the most intelligent, articulate, if not the most evangelical of the bunch. I listened closely to his claims about both Bitcoin and gold. To his credit, he made a brilliant trade and one can’t argue with the fact that his bet has -  on paper at least - made him and his company billions of dollars. 

But many of his claims still struck me as flat out wrong, misleading and in some cases, very bad investment advice. Honestly, it was starting to bother me.

I decided to challenge Saylor to a debate. I approached Daniella Cambone of Stansberry Research who has always conducted fair and thorough interviews. She in turn approached Saylor, whom she had interviewed recently. It took a number of weeks of effort and I must say a little prodding from myself, both directly and through social media, but Saylor finally agreed.

I believe we both took this debate very seriously and prepared extensively. The debate aired on April 22, 2021 (you can watch it here) and one week later it has garnered almost 450,000 views. The debate is almost two hours long, but well worth the time if you are investing in either asset.  And even at that length, we didn’t get the chance to unpack all the issues pertaining to gold versus Bitcoin. Speaking for myself, I ran out of my allotted time on two issues, risk and market forces. I had more to say, especially on risk. But I’m not complaining - I knew the rules going in. My bad.

I am not sure our debate settled anything. The Bitcoin believers remain steadfast and the gold bugs are equally unwavering. It’s clear that only time will tell as to who’s way of thinking will prevail. And that time frame may be months or years. Markets are impossible to predict in the short or medium term. Looking at long term macro trends has served me well in my many years as an investor. I have learned to look through all the daily noise and stay focused on matching historical patterns. Playing the long game may be frustrating at times, especially when the world around you is giddy and getting rich quick feels like a slam dunk. If your objective is to get rich quick, you must speculate and take risks. There is no free lunch. If your objective is to preserve wealth, then you need to take a more sober view of the world around you and not bet the farm on one asset. Especially in these uncertain times. That’s my bottom line.

Enjoy the video and let me know what you think.