Crypto vs. Gold: How to argue?

(The Archive: Article)

I physically own crypto, gold, silver and platinum. I would have liked to also own some palladium and some rhodium but I never bought any of those two additional metals. I started by buying some gold back in 2013. In the following years, I would buy more gold and more silver. I have also traded gold miners, and even leveraged instruments on juniors gold miners. Leverage to the upside that is. And I learnt my lesson the hard way; Leveraged instruments on an already volatile sector of the precious metals "juniors" industry is not a simple buy and hodl.

Especially not when that market is full of actors who unlawfully collude to trade the market for their own profit. Fines are paid and the game goes on. Most of my readers probably know about fractional reserve banking and how it applies to precious metals. The fact that on a daily basis, multiples of yearly mining output in silver gets traded in the futures market is not conductive to price discovery. Supply and demand become irrelevant and it becomes a parallel world where refineries are running at max capacities and premiums are very high but the official price, the paper price, stays low. And the existence of that parallel universe is enabled by decoupling the physical side from the derivatives side. And this is what I mean by fractional reserve banking and how it applies to metals by decoupling what a bank sells as gold (a promise to deliver) from the actual thing. If you don't own the metal, you don't have it. Not your keys, not your crypto.

Okay, now with that out of the way, here is how to argue. Let's say your uncle Bob is all about gold and silver, which he calls "Poor man's gold", and you're trying to convince him that crypto is better. It is difficult to argue with someone that does not have the knowledge necessary to connect the dots. You don't have 18 hours to explain everything to him and he hasn't even stumbled upon the entrance of the rabbit hole. "Red pill vs blue pill" means nothing to him. He laughs at crypto, he's maybe not sure, he just knows that gold is better, more solid, he can touch it, it has been money for thousands of years and it isn't going away. I understand his views. I share them. But there's better out there, that's all.

So here's how. Just tell the person that you're better than they are at buying whatever their thing is.

It is better to buy crypto, ride it up, sell, and then buy gold! It's a no-brainer argument because you are just telling him how to get more of what he loves best. You are just showing him the existence of a vehicle which has provably, completely outclassed gold and which can easily be used to acquire more of anything real that he wants. When I say ride it up, I refer to the unprecedented exponential age that Bitcoin has ushered us into. Pure mathematical finite supply had never been experienced by humanity. Creating a decentralised, thus global, computing network to secure the blockchain beyond any individual actor's power has ushered humanity in a Brave New World. Since 2009 nothing has beaten bitcoin. And I am not a Bitcoin maximalist either. Other coins and tokens since then now have my full attention. I could add more coins to my spreadsheet... But just to make it easy in the argument, I am talking only about BTC here:

On this spreadsheet, I wanted to the get the following answer: How much gold could you acquire today, if you had exchanged it in the past, at a given date, for BTC?

The last column ("BTC=>GLD") gives the answer, in ounces of gold. We start with 1 ounce and end up with the number in the last column. A value of one is breakeven. Below one, you have lost some gold, above one, you gained some gold. The dates were picked like a clock every six months.

So on each line, on the given date, it is assumed that you sold your 1 oz gold, paid a 7% fee to come back in fiat (USD). Then used that fiat and bought BTC while paying an additional 7% premium. We see in the GLD=>BTC column how many BTC you would have received had you sold one once of gold on that date.

Then in the BTC=>GLD today column, we look at how much gold you would get back if you sold that BTC quantity today, paying a 7% fee on the sale and then bought back some gold, while still paying an additional 7% premium.

I kept the fees/premiums on all transactions at 7% to make this realistic. It makes my point even stronger. A seven percent premium is high but not unrealistic.

Given those numbers we see very clearly that one of the best ways to accumulate gold, is to use the vehicle that is called crypto. As you can see, you would have been able to increase your quantity of gold had you sold it off to buy crypto and waited until today to sell it back against gold. Only if you did this on the last two lines would you have lost gold, thanks to the fees I have included.

Here is the conclusion: At any point in time before January 1st 2021, you would have been better to sell your gold and buy crypto. Selling that crypto today would now allow you to buy much more gold than if you had just held on.

So I would tell Bob that I own some gold, that I bought it in 2013 at around 1700 USD all-in but that this was not the best move in retrospect. The best move would have been to buy Bitcoin at that time. If I had bought for 1700$ USD of BTC in 2013, at the worst possible time, at 1K$/BTC, that would have given me 1.7 BTC, which I could sell today at 39K/BTC, thus getting 67K$ with which I could now acquire roughly 30 times more gold than with my current approach. Had I made the switch in July of 2013, I could have multiplied my gold by 241x, as can be seen on the table above.

Being critical with yourself like this is good to improve. Telling someone that you criticise yourself, who wanted to buy as much gold as possible, yet failed to see the best way to accumulate it is quite convincing.

You do end up circumventing the argumentation, but you still make your point. Preferences are subjective and it is hard to tell someone what their preferences should be. In fact, you can tell them but they ultimately will decide what they really prefer and they will be 100% right in their desire. If someone wishes to enjoy the utility derived by the ownership of whatever (real estate, gold, fine art...), then the best vehicle to reach their objective is through crypto. Show them my article!

This is not financial advice. This is analysis of what my spreadsheet and math and what markets are saying. Will we also get a disconnect in crypto between a real price and a paper price? I'm just Seeking Truth. If you're visual like me, you may like to show Bob the following:

Below we have BTC/USD red and green candles with Gold in yellow / gold. I have zoomed in to see more life in gold price movement:

Because when you zoom out and look at the big picture, gold looks dead (flatline):

Thanks for reading!

Top "Gear" Image (edited to add BTC) source: https://www.roadandtrack.com/car-culture/entertainment/a32287130/mclaren-speedtail-vs-f35-fighter-jet-top-gear/