Did Bitcoin Kill Gold's Monetary Utility?
Comment of the Day

October 20 2021

Commentary by Eoin Treacy

Did Bitcoin Kill Gold's Monetary Utility?

Thanks to a subscriber for this article by Cullen Roche for Pragmatic Capitalism. Here is a section:

One of the corollaries between cryptocurrencies and gold is that, as forms of money, they’re both grounded in the same decentralized concepts that make them useful alternatives to fiat. Gold has obvious impediments to its monetary utility in a modern economy – mainly the fact that it’s difficult to transport. Bitcoin and crypto fixes that. Personally, I find the long-term inflation hedging benefits of crypto to be somewhat less beneficial than many proponents believe. After all, all crypto is endogenous in the sense that it is literally created from nothing and can be borrowed into existence in exactly the same way that modern banks create synthetic “dollars” from nothing when they make loans. A “fractionally reserved” Bitcoin system with endogenous lending could be every bit as inflationary as the current fiat system with the main difference being that there isn’t a government there to pump trillions into the system on a whim. And that’s where the last 18 months and this “faith put” in gold is pretty interesting….

A strange thing happened during COVID. The US government spent $6T to fight off the pandemic. As expected, the huge fiscal stimulus led to a somewhat uncomfortable level of inflation. But here’s where things get interesting – since the start of the pandemic in March 2020 the price of gold is up 6.5%. The price of Bitcoin, on the other hand, is up almost 10X. It’s not just a small difference. It’s an astounding difference. It’s the kind of difference that makes you wonder if people even believe that gold is an inflation hedge.

Eoin Treacy's view

The Permanent Portfolio with 25% in stocks, 25% in bonds, 25% in cash and 25% in gold has stood the test of time. It is logical to question whether the introduction of new assets should alter the composition of the portfolio. What I find particularly interesting today is there is a simultaneous questioning of the merits of the 60/40 portfolio which is much more popular than the permanent portfolio.  Meanwhile Paul Tudor Jones is touting bitcoin’s status as an inflation hedge. 

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