On Gold, Dollars, & Bitcoin

Tyler Durden's picture

Authored by Paul Brodsky via Macro-Allocation.com,

We have been bullish on gold – the barbarous relic; King Dollar – the modern hegemon; and Bitcoin – the crypto currency investors love to hate. One might say our feet have been planted firmly in the past, present and future. (We may not have three feet, but let’s go with it.) Are we hedging our bets, being too cute by half, or is there a cogent rationale that unifies bullishness for money forms most would consider incongruous and at-odds with each other?

The short answer is we like:

1) gold, because central banks around the world own it and are buying more, ostensibly to devalue their fiat currencies against it someday, after they are forced to hyper-inflate in order to reduce the burden of systemic debt service and repayment;


2) the dollar, because dollar-denominated financial markets are broader and deeper than any other market and because the Fed is years ahead of other major central banks when it comes to normalizing policy and maintaining bank solvency (i.e., other fiats are in worse shape), and;


3) Bitcoin, the borderless digital currency that is already being perceived as a better store of value than gold and all fiat currencies, and potentially a more expedient means of exchange too. All three should win in different ways.

It may be easier to accept this discussion by first reminding one’s self that monetary regimes come and go every fifty years or so. The last transition was in 1971 and the world is due for another. We have a high level of conviction that the evanescence of the current global monetary system is rooted in sound economics and already has been firmly established. A global monetary reset is necessary and likely.

To understand why we must break down money into its two main components: a means of exchange and a store of value. When it comes to using money in exchange for goods and services, fiat currencies have it all over gold and crypto currencies presently. That’s because governments demand taxes be paid with their fiat currencies (legal tender), forcing producers and labor to demand compensation in those currencies. As a result, banking, payment systems and all goods and service channels are set up to use fiat-sponsored currencies.

When it comes to a store of value, however, the factors of production may choose to save in whatever form of money they want. If the general perception is that government-sponsored, bank system-created fiat currencies will have to be greatly diluted in the future so that systemic debts can be serviced and repaid, then savers will migrate to money forms with capped floats, like gold and Bitcoin.

Prior to 1971, if a major government-sponsored currency was threatened with dilution, global sovereigns and savers and producers would exchange that currency for gold at a fixed exchange rate to the dollar. Or, they could simply exchange that currency for another currency less likely to be diluted. In the current regime, all economies are highly levered and all fiat currencies must be greatly diluted in the future. It comes down to timing and we think the US dollar is the best positioned of all major fiat currencies. That said, it will eventually have to be diluted too and will lose value in gold and Bitcoin terms.

As mentioned above, gold is still owned by the world’s major treasury ministries and central banks. (In fact, it is effectively the only asset on the Fed’s balance sheet that is not someone else’s liability.) If US or global economic growth were to fall enough, or contract, and central bank monetary and credit policies were to fail to stimulate positive growth, then the value of all outstanding sovereign, household and corporate debt (and bank and bondholder assets) would become stressed.

The Fed would have no choice but to devalue dollars against its other asset – gold. Other central banks would either follow suit or go along with a coordinated plan to fix their currencies to the dollar (i.e., a new Bretton-Woods agreement). If this were to happen the price of gold in dollar terms would rise by as much as five to ten times current levels, in our view. (We arrive at this magnitude of change by taking the level of bank assets needed to be reserved and then using the Bretton Woods formula for currency valuation, base money divided by gold holdings.)

The new gold price would reflect a level at which gold holders would be willing to exchange their gold for the diluting currency. This dynamic is basically what happened in another form with US interest rates in 1980/1981. US treasury yields were forced higher by the Fed (22 percent to 15 percent along the inverted yield curve), a level at which trade partners like OPEC would accept dollars with a floating exchange rate.

Finally, Bitcoin. The BTC/USD exchange rate has gotten a lot of notice lately because it has almost doubled in the last month (se chart below)...

To listen to financial media commentary, the extraordinary move must be the result of unsophisticated financial rubes looking to get rich quick on the latest tulip fad.

We disagree. While the dollar price of BTC may drop significantly any time as it reflects people’s understanding of dynamic global economic and monetary conditions and of Bitcoin itself, we are highly confident the exchange rate will appreciate dramatically from current levels over time.

To be sure, faith in the flexible exchange rate fiat monetary system remains strong in G7 economies and those that actively trade with them. But major currencies require continued faith in perpetual growth without recessions and that highly leveraged, irreconcilable balance sheets will never have to be diluted.

Meanwhile, access to Bitcoin takes only internet connectivity, it is free to store, and there is no need to hide it traveling across borders. Bitcoin, itself or as a proxy for all crypto currencies, is quickly becoming a more reliable and accessible store of value for 5 billion people across the world residing in economies without major currencies, strong central banks or stable pegs.

The store-of-value benefit is beginning to make itself clear to wealth holders in developed economies too, those becoming aware of the need for future fiat currency inflation by monetary authorities.

Those unfamiliar with crypto currencies tend to fear bubble bursting outcomes. While this fear is understandable given its newness, complexity, past volatile market action and lack of a central or sovereign regulator, it is not reality-based. Bitcoin cannot be successfully hacked due to its underlying block chain recordkeeping system, which documents every transaction and every sequential custodian in the chain (all anonymously to the world). No one can create Bitcoins outside its system or sell Bitcoins that do not exist.

Further, Bitcoin’s float cannot be diluted without the express agreement of 51 percent of all Bitcoin holders. Bitcoins are widely dispersed across the world and there is no central authority with a political agenda. It is inconceivable why Bitcoin holders would agree to being diluted anytime soon.

At a $50 billion total market valuation, of which Bitcoin is about $30 billion, crypto currencies have almost incalculable appreciation potential vis-à-vis fiat currencies. They should gain significant market share for store of value purposes, and this could be sped up if payment systems adopt Bitcoin, Ethereum, Litecoin, or another crypto currency as a global means of exchange. After all, global fiat money amounts to nearly $100 trillion.

Many of us who have toiled over the years as professional investors are deluded with the explicit or subconscious expectation that the perception of wealth and markets will someday revert to what they were five, ten or twenty years ago. They will not, in our view. Yes, this time IS different (as it always has been). Our money will change (as it always has).

Given the highly leveraged state of the current monetary regime, the most dominant variable for future wealth maintenance and creation, in our view, may not be asset selection but rather money selection. Something to think about...

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jm's picture

If P = NP then fear bitcoin and all crypto currencies because they are ultimately not secure.


espirit's picture

I'll trade you 'X' Bitcoin Blockchain for that 2.2 Kg brick of Au.

Uh, no you won't.

38BWD22's picture



Actually holding all three (gold, CA$H and BTC) is a pretty good diversification if anyone owns stocks, bonds or real estate.  Each of those three have different "vectors" (move somewht independently) and so offer safety under differing conditions.

Own everything!


0valueleft's picture

Hey not fair, you pick a team god damn it. There is no tolerance for prudent comment here.

Who do think you are mr. smarty guy.

38BWD22's picture



I do own a lot more gold than Bitcoin, but my BTC has gone up a lot more in the past year than my gold has.


[or are smarty pants Latin acronyms not allowed here?]

SoDamnMad's picture

I thought it was French, "Smarti Pants" with all kinds of diacritical marks thrown on above the letters.

The BigPram's picture

you can add an extra 1200/USD a week to your income just working on the internet a few hours each day, check out this page... http://bit.ly/2jdTzrM

Mustafa Kemal's picture

"Own everything!"

Yes, the question should not be whether to invest in bitcoin, but how much.

Same for 

Au. Ag, Pb H20,$

HRH Feant2's picture

I have equal amounts of cash and gold. I went overboard on silver and have around 100 pounds, in weight, of physical silver, primarily monster boxes and 100 ounce RCM bars.

New to BTC but getting up to speed. Everything I have in BTC I can afford to lose and it won't upset me.

Hope that helps!

Mementoil's picture

Bitcoin is currently trading below 2000USD.
Just saying...

quintus.sertorius's picture

I couldn't agree more, put you eggs in different baskets: own gold & silver, own bitcoin (& ethereum), own physical cash.

UmbilicalMosqueSweeper's picture

"Own everything."  Didn't Rothschild tell his sons that?

Raffie's picture

This week Central Bank did say "Do not use cryptocurrencies because they are not backed by central banks"

Shortly after thinking that over I bought more Bitcoin.

Making Merica Great Again's picture

If Central Banks said it's bad, then it must be good.

espirit's picture

I think Bitcoin works out great to hoover up excess fiat worldwide off the paper table.

Now they can ctrl-P more.

jm's picture

And then potentially... "poof it is gone".  The whole architecture operates outside of any legal framework.

kamikun's picture

Yes. And in programmer jargon, "that's a feature, not a bug."

espirit's picture

It's got that 'Cash For Gold' odor about it.

dark pools of soros's picture

you got that born stupid vibe about ya

Raffie's picture

Don't let me stop you, you are on a roll.

Love the whole tunnel vision thing you got going on that only you know the truth. You cracked the code using your weenie whistle and a dead bird....

Can't wait to see the next random direction you go based on no facts.

BRB getting popcorn.......


espirit's picture

Appeal to the Stone, all you want Dude.

OregonGrown's picture

Really tough for me to buy anything, STOCKS or BTC when they are both at the all time fucking high!  

CJgipper's picture

FYI, a 40% off sale is NOT an all time high.  Today is buying day for BTC.

PTR's picture

No doubt.  How many people in the stock market said in the mid-90's "I'm not buying XX, because it's at an all-time high?"


Bluz's picture

At the parabolic moment, you are not buying bitcoin, you have entered the casino.

Mustafa Kemal's picture

"when they are both at the all time fucking high!  "

Then get Litecoin, Ripple or Ether, for example.

HillaryOdor's picture

Of all the things to worry about with cryptocurrencies, P=NP is at the bottom of my list, just underneath losing my brain wallet due to Alzheimer's.

espirit's picture

We'll throw in a little 5G cell service to help you along with that.

silverer's picture

Bitcoin may be a good thing if electricity can be maintained. That is, no nuclear war and an intact internet.

Raffie's picture

POWER & INTERNET = Cryptocurrencies

NO POWER or INTERNET = what cash you have on hand then switch to PM

When POWER & INTERNET are RESTORED = Cryptocurrencies

Ya, it is very CORNFUZING for sure to think about.

The right currency for the right condition.

BUT the most important thing to have is at least 6mo food and water per person. If you die from lack of food or water what good is currencies? So have the basics 1st.

You can live up the 30 days on just water.

You can live up to 3 days without water. Pretty cool huh?

Creepy_Azz_Crackaah's picture

A functional hand pump well on your property. Infinite water. At least for personal use. Add a solar powered pump motor and even more fun.

Raffie's picture

So EVERYONE has property, a well and a hand pump???

How interesting.... please continue....

espirit's picture

How well can you remember zee code after you've been stripsearched and put in an orange jumpsuit?

IronSights on'um's picture

No, just the smart prepared people

Mustafa Kemal's picture

"Bitcoin may be a good thing if electricity can be maintained."

Bitcoin is a good thing when electricity is maintained.

HRH Feant2's picture

Good article! If I want to buy land or a building I will use silver or gold to make that purchase.

If I need to leave the country, in a hurry, I am going to use BTC. Not a hard decision.

38BWD22's picture



You can leave the country with tiny hardware wallets that are unlikely to be seen or confiscated too.  But, for the even more paranoid, you can put some BTC in a "web wallet" like blockchain.info offers, and you do not have to take ANYTHING with you.  Ah, do get your BTC onto some better wallet upon arrival though.

DjangoCat's picture

Put the mnemonic on a piece of paper in your wallet.  Folding cash.

HRH Feant2's picture

Exactly. Much easier to carry a notebook or a thumbdrive than a large amount of gold or silver. It is a matter of convenience mixed with fear. I am certain that most border guards would happily relieve me of the weight of my PMs. A stupid thumb drive? Piece of paper? Not so much.

Son of Captain Nemo's picture

Gotta let the banks know WHO YOU ARE... And WHEN and WHERE you will SPEND IT!...

That's why the CBs love Buttcoin post-Mt. Gox and "WannaCry" and will be assisting with the mining efforts to jack up that price so that everyone rushes in!....

Just a little more "sharpening" required before they have control of every "buttchain" that is OUT THERE!!!

SafelyGraze's picture

+1 for "buttchain"

charming, mister sonofcaptainnemo, if that is your Real Name


Son of Captain Nemo's picture


You can't say you haven't been warned by the voice(s) on this site!

dark pools of soros's picture

Yes the same voices warning of $200 Silver and $5000 gold!!!  And how bitcoin is a fad!!   Such great advice Nimrod!  how many years now?

PTR's picture

Educate yourself.  This is a good place to start: https://www.youtube.com/watch?v=EIRCvIrz4Dw 

When you see what Fortune 500 and trans-national corporations are incorporating blockchain technology (ala the Etherium platform,) it'll make you (or someone else, anyway,) realize that this isn't a fad.


BTW- PMs are a heavily manipulated market, hence why price discovery is so laughable.

Global Douche's picture

Butt of course, we will have to use the Bank$ter's Blockchain, so there..

DjangoCat's picture

Bullshit.  Only at the cash end.  Use services like Bitpay or localbitcoins.

I listened to a PBS bit on Wannacry, lady saying that the take in the bitcoin address for the ransoms was only USD32,000 four days in.  Thats not a lot.  False Flag??

LetThemEatRand's picture

If the governments around the world make it illegal to exchange bitcoin for goods and services (e.g., you go to jail if you use it), what happens to its value?   Serious question to bitcoin proponents.

Stormtrooper's picture

It's called a black market.  Just like if they make it illegal to use PMs for money.  Or anything else with underlying value.

LetThemEatRand's picture

I'll give you that a black market in BTC may remain if it is made illegal, but you think the price will be anywhere near current levels if that were the sole means of its use?

seek's picture

Yes, lest anyone forget that in the early days of bitcoin the system end-to-end was peer based and used generally anonymous face-to-face localized exchanges, and was use to facilitate international trade in items that were, shall we say, less than government-approved. And it grew from there.

That said, every time there's been a signficant crackdown (especially in china) we've seen some pretty intense sell-offs, but nothing that's come remotely close to killing it.