This writer has never been a believer in bitcoin. I sincerely believe bitcoin is a dubious fad which will peter out in the long term and cost buyers of it a considerable amount of money as it returns to its inherent value, which I would put at near zero!
However, I am also one of the first to admit my advice on cryptocurrencies in general has not been borne out by their performance to date and could have cost buyers who have followed my guidance some pretty spectacular gains.
But have I changed my opinion? The answer is a resounding NO.
There is just too much fraud, potential fraud and vulnerability built into the bitcoin environment for it to survive intact in the longer term – or so I sincerely believe.
Gold, on the other hand, has stood the test of time as a wealth protector and (relatively) safe haven in apparent value as supposedly even strong fiat currencies have diminished in value over the years.
This has been the case for hundreds, if not thousands, of years. Gold has not, therefore, been a vehicle generally for spectacular gains, except perhaps in cases of total currency and socio-economic collapse. In other words gold, in effect, has just been an inherently safe form of wealth preservation.
Thus if gold does soar to the $5,000 or $10,000 level beloved of some commentators this would likely be in response to almost total collapse in purchasing power of the dollar, rather than a real rise in the gold price. All things are relative.
A collapse of this kind of magnitude in the prevailing socio-economic system by which we are all governed, would not be something we would want to live through. Be careful what you wish for!
Bitcoin, on the other hand, is, in my opinion, purely a speculative entity dependent on more and more people being sucked into in it by ever more dubious media promotions. It is very much a child of the social media age and may thus appeal to a newer or inexperienced buyer in particular. It is therefore a little disturbing that some respected names seem to have given cryptocurrencies a degree of support and thus credibility.
I’m not saying that all bitcoin, and so-called stable coin, commercial entities are dubious in their antecedents, but some most definitely are. Buyer beware.
But how about the gold tortoise versus the bitcoin hare? Gold offers stability and a limited downside risk, although can be circumspect in moving upwards with any rapidity. Over the years it has served as an excellent wealth protector.
There is not the massive upside potential often attributed to bitcoin - that is unless we succumb to a horrendous economic collapse that would be disastrous for most equities and bitcoin alike.
Bitcoin on the other hand can be hugely volatile, as we have already seen in the cryptocurrency’s short life to date. It can fall 50% in a matter of weeks as it did as recently as in April and May this year and even more steeply as back in its big crash in 2017/18.
It has made a partial recovery recently, but is still a long way off its April high and has recently been moving very erratically in price which suggests all is not well with the asset class in the eye of regulators.
In summary, gold offers relative safety, with the likelihood of at least protecting one against the ravages inflation may have on the purchasing power of the dollar. There is substance behind it in the form of major central bank holdings which will not easily be written off. But its relative stability makes it very much a tortoise – slow to move and to make rapid significant gains.
Bitcoin, though, is very much a hare. It may, or may not, have the potential to provide substantial short term gains or losses, but this writer sees its longer term potential as problematic.
As a digital form of money it is effectively only code held on a computer and thus increasingly vulnerable to today’s ever more sophisticated hackers and fraudsters. Governments don’t like it either, as it can be a way to move funds completely anonymously, something that can benefit tax dodgers and the criminal elements in society.
Thus it is likely to become an ever-growing subject for investigation by regulators that has to be a worry for some of the more dubious players in the market. Any adverse publicity should unsavory activity be exposed could lead to a crisis of confidence in cryptocurrencies in general and a consequent price collapse.
Bitcoin remains, therefore, very much a gambler’s play. But even so, perhaps better safe than sorry. Time has shown that sticking with gold can be a safer bet, and it is my opinion you should only purchase bitcoin if you have money you can afford to lose.
In the Aesop fable, remember it is the tortoise that wins out in the end.
by Lawrence Williams
Lawrence (Lawrie) Williams is a highly regarded London-based writer and commentator on financial and political subjects, specializing in precious metals news and commentary. He graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London. He has contributed articles on precious metals to the Financial Times, Sharps Pixley, US Gold Bureau and Seeking Alpha among others.
The opinions expressed in this article are the author's own, do not necessarily reflect the opinions or views of Rosland Capital LLC or its employees, and do not constitute financial or investment advice or recommendations from the author or Rosland Capital or its employees. The author is compensated by Rosland Capital for his articles.