“Praise, like gold and diamonds, owes its value only to its scarcity” Samuel Jackson

As equity markets jockey around with no real direction, one feels that we continue to go through a period of consolidation. At these times, thoughts have turned to the relative merits of Bitcoin and gold. Bitcoin was once considered an asset used as a tool to speculate with or to finance nefarious activities, is now becoming mainstream. A prime example, the well-known financial powerhouse Fidelity International has now offered to act as a Bitcoin custodian. Try as many do to understand the theory behind Bitcoin; it is not easy, particularly if you are over the age of 25. Bitcoin has come a long way in 13 years; one can even buy a Tesla car with Bitcoin if one wants to own a Tesla. One Bitcoin is roughly the price of a mid size Tesla.

 Bitcoin fans will tell you the core attraction is the asset is another way of hedging against the response central banks have made to support the global economy during the pandemic. The principle of Bitcoin is a digital currency that has no middleman. The neigh Sayers will argue it is an unregulated asset that has no place in the financial market. Other advocates like that there is a finite supply (21 million); unlike the US dollar, governments cannot manipulate it or debase it. Any central bank does not back Bitcoin. Therefore payments once made cannot be unmade.

The properties of gold, on the face of it, are similar to those properties of Bitcoin. The most notable being that the price of both is primarily driven by sentiment. Like gold most people who own it feel they sleep better. When one can go back to dinner parties, and the conversation turns to Bitcoin, the room with have more guests than own it than do not, most though will not be sure why.  

Like Bitcoin, gold is considered protection from inflation or the debasing of currencies. However, central banks do hold gold, and therefore the price can be manipulated by them. In time governments could own Bitcoin. There was a time when regulators could have stamped down on digital currencies; that time is probably past. Neither asset is perfect; gold is expensive to store and not easy to carry around. When you buy a bitcoin, you get a password, lose the password, and lose your Bitcoin. Despite the core rationale for owning gold or Bitcoin, a hedge against currency devaluation, gold is down 10% year to date, Bitcoin has doubled in price. Only a brave man would sell Bitcoin to buy gold, sometimes fortunes favours the brave.