Source: Ron Struthers 04/09/2024
There has been a lot of activity in the market. With Bitcoin (CRYPTO: BTC) soaring to old highs and gold breaking out into record hights, Ron Struthers of Struthers Resource Stock Report takes a look at what might be going on.
There has been a lot of activity in the market with Bitcoin soaring back to old highs and a bit more and gold breaking out to record highs.
What is going on?
The Basics
First a bit of level set and the basics of each. You hear cryptocurrency but it is not a currency not even close and never will be. Currency is a medium of exchange that can be transmitted between people and is generally accepted.
Only government-backed fiat currencies (dollars, yen, euros, etc.) and gold fit this description. They are Tier one assets that can be used as collateral, make loans against, etc. Central Banks own paper currencies, bonds, treasuries, and gold, not Bitcoin, silver, copper, or oil.
The world population is around 8.1 billion and anyone with a hand can use paper currencies or a gold coin. Bitcoin requires a third party and an internet connection to work. Moreover, both people require a crypto wallet. There were about 84 million crypto wallets in 2022, which is only about 1% of the population.
It is simply not widely used or popular enough. Even if the number of wallets doubles or triples, it is still very small. The Bitcoin market is also too small and not liquid enough. At today's high prices, the market is about $1.3 trillion compared to about $6 trillion for gold, which is only physical gold. And it's $10s of trillions for various government fiat currencies.
Silver will also work as a currency in times of turmoil and disaster because it has a long history as coinage and was only abandoned in coins in the late 1960s. Industrial consumption is about 65% of the annual market today, so this is pulled out of circulation where very little gold is pulled out of circulation and no fiat or bitcoin. The silver market is very small at $26 it is about $1.5 trillion for all the silver ever mined, but we know most of that went into industry, sitting in millions of circuit boards, silverware, dishes, solar panels, etc. Physical coins and bars etc. could be a value around 1/2 trillion today.
Gold is the premier currency and unique because it can't be printed, or downgraded and is nobody's liability.
"We have gold because we cannot trust governments" said President Herbert Hoover, but the U.S. was on a gold standard then. Most Western governments despise gold publicly, but their central banks still hoard it.
Of course, as we all know, the biggest negative with fiat currencies is they keep printing more of it out of thin air and debase its value. In the long run, every single fiat currency has evaporated. The US$ has been one of the longest-lasting ones, but out-of-control spending and printing are eroding its value at a faster and faster pace. Just the deficits and interest payments are around 74% of the U.S. budget now.
Bitcoin pundits will argue that the amount of bitcoin is limited, and it grows very slowly. That is true, but it is really like fiat currency because around 10,000 different cryptocurrencies have been created. Crypto.com lists the top 3,000 and if you add up the top five with Bitcoin you have about a $2 trillion market value. There are not 100s or 1,000s of different gold, just one and governments create more and new fiat currencies all the time.
What did the people of Ukraine and Russia do during the war and recently the Palestinians? They flocked to gold and US$, not Bitcoin. In Turkey where high inflation is collapsing the currency they are flocking to gold, not Bitcoin. About 350 kilograms have been seized at the Turkish border so far this year. The Turkish State Mint which has a monopoly on the production of standardized 'Republic Gold' coins, "is working double shifts through to 1 am seven days a week to meet citizens' demand" said Mehmet Hekim, the Mint's deputy general director. "It's almost doubled its daily output in recent weeks to 700-800 kilograms as of Wednesday."
To sum up, Bitcoin is best described as a new, unique financial instrument that is very volatile while fiat currency is best as a daily median of exchange for goods that continuously erodes in value, referred to as inflation. Gold is a store of wealth and holds its value long-term or, some would say increases in value as measured against fiat currencies. If you look at the past 20 years or 50 years, gold is the top-performing asset, over the stock markets, bonds, whatever.
I am not saying not to trade Bitcoin, it is even easier now with the ETFs, but it is just speculation. If you think Bitcoin is going to save you in times of turmoil, you are just fooling yourself. Its greatest weakness is that it is totally reliable on the power and communication grid. Another reason it was useless in much of Ukraine and Gaza. Fiat currency is also becoming totally reliable on the power and communication grid. You can still use physical paper cash but few retailers will accept it if their electronic systems don't work and governments are determined to get rid of physical cash.
Investors, survivalist, family providers, etc., should have 1000 to 3000 worth of physical cash depending on your lifestyle and physical gold and silver. Once you have that, it is fine to speculate in Bitcoin and the Stock Market, what have you. When investing, your goal must be to beat inflation. Currently, ...