In 2024, gold price rose 27% and beat the S&P 500’s (itself stellar) 23% gain. Bitcoin price exploded a whopping 121%, — to briefly over $100,000 per coin. In order to figure out the prospect of each from here, one first has to understand the true nature of each. Is gold just a shiny relic that pays no dividend or interest; or is it the most solid currency in the world (by virtue of not being a debt-based fiat currency, — thus having no counterparty risk)? It is, after all, a “Tier 1” asset (the most pristine collateral) in the capital structure of financial institutions. Is Bitcoin just an imaginary “asset” subject to hype and insane speculation; or will it be the global digital currency in a brave new world soon to come, obviating the need for gold (as a reserve) altogether?
One thing is for sure: 2024 was the wakeup year for investors that decades of reckless money printing by virtually every central bank on the planet has rendered fiat currencies —and sovereign bonds denominated in them — of dubious value. Both gold and Bitcoin are currently perceived as better “stores of value”. My position on gold is that it is simple: When gold moves up as the currency (in which it is denominated) moves down; then gold is a hedge against inflation; but when gold and the reserve currency (US dollar) move up at the same time (which has been the case in the U.S. since mid 2024), both are a measure of — and hedge against — global tension. Since geopolitical complications will only multiply with de-globalization in the coming decade, global tension is not going away anytime soon. So gold price will keep trending up (albeit consolidating some in 2025).
Bitcoin is a much more confusing story. Hype has clouded the judgement of many — including my own — on Bitcoin. Bitcoin was conceived to be a “token” (digital asset) that functions in digital Ledgers. In traditional finance (TradFi), ledgers are centralized at specific financial institutions such as banks or brokerages. Trust in those financial institutions is implied. Digital Ledgers are distributed among countless computer nodes in the network, none of which can — or needs to be — trusted. Instead, trust in the infallible authentication and verification methods, — driven by flawless mathematics—in a totally digital, decentralized, financial (DeFi) system is implied.
Importantly, the verification of each transaction’s financial integrity involves tracing every transaction chain back to the very first entry in the digital ledger. The system further validates the proper sequence of transactions by requiring the solving of (cryptographic hash) “puzzles” in a blockchain by countless computer nodes in the network before reaching consensus. Obviously, the need for computing power rises exponentially as transactions accumulate with increased adoption of the new digital financial system.
I’m not aware of any widely deployed blockchain transaction system in commerce. I wonder about power outage or insufficient computing power in the network when such a system is actually deployed. And the concept of an infallible system driven by flawless mathematics scares me. So my position on Bitcoin is: “the jury is still out” on the viability of blockchain transaction systems and Bitcoin’s value per intended purpose.
Meanwhile, Bitcoin has been repurposed for years as a “rent a digital-money changer”, notably to move money out of countries under capital control. One first buys Bitcoin with currency A in country A, electronically transmits the Bitcoins to country B, then sells the Bitcoins for currency B. Does owning instead of renting Bitcoin make it a currency? No. A sovereign decrees its currency by fiat. Until the US government edicts taxes be paid in Bitcoin (thus requiring everyone to own and use it), Bitcoin is not a currency in the US.
It is a tradeable “asset”, though. By popularizing/hyping its trading, Michael Saylor's MicroStrategy and Blackrock’s Bitcoin ETF have driven up Bitcoin’s price spectacularly. Some suspect Trump’s “talking up Bitcoin” is a sly way to extinguish Treasuries with inflated StableCoins. Michael Saylor even advocates the US government sell all its Fort Knox gold to buy Bitcoin as a “neutral” reserve, — which further fuels the fervor. But at the end of the day, the whole idea of creating a Strategic Reserve of a tradeable — but neither tangible nor universally understood — “asset” (software protocol) seems far fetched. For one, neutral reserve — the object against which to devalue fiat currencies as a means of inflating away unserviceable sovereign debt (as demonstrated by FDR in 1933)— has to be agreed upon by all nations in a world of tightly interconnected global finance. The BRICS nations are already committed to gold being their neutral reserve. At best, The US may insist that Bitcoin be add to the mix in a neutral reserve basket. The BRICS nations may balk at even that.
Price is not value. Warren Buffett has notably stayed away from Bitcoin for its lack of intrinsic value. Regulators are still trying to decide whether this “asset” is a security whose trading should be under tight scrutiny and regulations by the SEC. Until that happens, the trading of Bitcoin is in the Wild West stage, evident by its exceptionally high price volatility, — the unmistakable mark of a bubble in the making. This bubble may indeed get much bigger if inflating StableCoins (via Bitcoin) to support Treasuries issues is indeed Trump’s agenda.
Bubbles are how one makes serious money, — as long as one exits before the bubble bursts. I have never owned Bitcoin but I owned Ethereum. I am now convinced Ethereum is in a bubble riding on the coattail of the Bitcoin bubble. I think there is one more up-leg for both, but expect both bubbles to burst in 2025. Accordingly, I sold my Ethereum in the first week of 2025. “Bulls make money; bears make money, but pigs get slaughtered”. It's better leaving the party with something still left in the punch bowl, then after the cops have already shown up.
