Gold or bitcoin? Investors have taken a shine to bitcoin lately, as the price of the cryptocurrency has jumped over the $20,000 mark this past month. But for a store of value, you’d be much better off sticking with gold, says portfolio manager Terry Shaunessy, who also has his doubts about bitcoin’s chances as a practicable global currency.
Bitcoin briefly hit above $19,800 this month, tracking a year-long path from as low as close to $5,000 in March and giving pause to investors who thought the cryptocurrency fad was a thing of the past.
Not yet at least. JP Morgan came out this week to say that more institutional investors are seeing bitcoin as an alternative to gold, to the detriment of the commodity, where gold has certainly had its share of success in 2020 as the market continued to look for a safe haven from volatility. Meanwhile, analysts at Bloomberg are expecting a lot more gains for bitcoin in 2021, putting a price target of US$50,000 on the cryptocurrency.
Even the big firms like Guggenheim Partners are seemingly warming to bitcoin. Guggenheim reportedly filed an amendment with the Securities Exchange Commission to allow the asset manager to invest up to ten per cent of its assets in bitcoin, a potentially hefty chunk for a company with over $270 billion under management.
Not everyone is convinced, of course, with claims perennially flying that bitcoin is no more than a jigged up Ponzi scheme or a front for organized crime. Not to mention the growing calls for regulation of cryptocurrencies in general.
Count Shaunessy, chairman at Shaunessy Investment Counsel, among the skeptics.
“Bitcoin is really being put to the public as a store of value,” said Shaunessy, speaking on BNN Bloomberg on Wednesday. “I think if you’re thinking of bitcoin for a portfolio, you’re looking at it as an alternative asset, and certainly in a world of ultra-low interest rates, where interest rates are actually below the rate of inflation, it makes the whole fixed income sector questionable. And this is where bitcoin is starting to get some attention.”
“But I have to tell you I’m really uncomfortable with how these this asset is priced and how it’s created. Perhaps it’s an age thing but I’m far more comfortable owning gold as a store of value. It’s tangible, it has a history and we know how it operates,” Shaunessy said.
“We use gold in our family portfolios, in these taxable accounts we’re using gold bullion as a zero coupon bond [where] you don’t get a yield but it should rise over time. And, theoretically, bitcoin should be the same way. But bitcoin is so less clear in terms of pricing and origination that I just would think you should be better playing gold bullion than bitcoin. It’s tangible.”
For the opposing position, there are plenty of bitcoin supporters who specifically see the crypto switching places with gold, not a minor feat, of course, but one which would shoot bitcoin’s value to the moon.
“Our thesis is that bitcoin is gold 2.0 and it will disrupt gold. If it does that it has to have a market cap of $9 trillion. We think bitcoin could price one day at $500,000 a bitcoin. So at $18,000 bitcoin it’s a hold or if you don’t have any it’s a buy opportunity because we think there’s a 25x from here,” said Gemini crypto exchange founder Tyler Winklevoss, speaking on CNBC’s the Squawk Box on November 30.
The Winklevoss twins, among others, have promoted the idea that bitcoin is a response to the mounting debt governments have undertaken, particularly in 2020 due to COVID-19-related spending. That debt and the printing of money are linked to inflation, the argument goes, which brings us to storing your wealth in gold or bitcoin.
“I think a lot of people are starting to realize that bitcoin is really the best defense and offers the opportunity for an asymmetric return of something like 25 to 40x from here. I don’t think there’s an asset in the universe that can credibly offer that kind of potential and protect against inflation,” said Cameron Winklevoss on the same program.
Bitcoin’s rise in 2020 has meant stronger performance from stocks related to crypto mining. Canadian name Hive Blockchain Technologies (TSXV:HIVE), for one, has gained 47 per cent year-to-date.
Accepted store of value or not, in the end Shaunessy says governments aren’t likely to let a cryptocurrency like bitcoin really take hold without being regulated like fiat currencies.
“I’m worried about all the cryptos. I cannot believe that central banks globally would allow a currency to operate on a worldwide basis with depth and breadth and not have countries control it,” Shaunessy said. “It’s too much for criminal activity, it’s too much for tax evasion, it’s too much for money laundering. There’s not a chance this thing will get going.”