GOLD V. BITCOIN
Can bitcoin outrun gold again in 2021?
What digital gold will be is one standard, one denomination, stored where it’s quoted to be stored. You never have to move it, but it’s on the blockchain…. The two (Bitcoin and gold) are going to come together. — Peter Grosskopf, CEO of Sp rott Inc.
Exactly one year ago, Peter Grosskopf, chief executive of Sprott Inc., a Toronto- based gold fund, was eagerly anticipating the next 12 months: interest rates were low and government debt was growing, strong signs in his eyes that gold would run.
Grosskopf, it turned out, was right. The price of gold reached a record high of US$2,070 per ounce on Aug. 6, before pulling back to US$1,895, leaving the yellow metal up 20 per cent for the year.
What he didn’t foresee was that gold’s performance would be overshadowed by an order of magnitude by that of its younger cousin, the digital currency Bitcoin, which soared 220 per cent in 2020 to break the US$23,000 threshold.
The disparity has breathed new life into a debate about whether gold, an ancient precious metal with a mature $ 10- trillion market capitalization, or the digital upstart currency born in 2009 under still mysterious circumstances and currently worth around
US$ 400 billion, makes a better hedge against the slew of risks lining up as we head into 2021, most notably inflation and a drop in the U. S. dollar.
“I’m going to repeat my comment, that everything is aligning for gold,” Grosskopf told the Financial Post in a recent interview. “Because the money growth is not going to stop.”
But even Grosskopf, an avowed Bitcoin skeptic, had to acknowledge that the cryptocurrency enjoyed a “phenomenal” year in 2020 and that his gold investors are increasingly asking to have it added to their portfolios.
Bitcoin’s l atest surge has come amid a slew of high- profile endorsements from business leaders such as Tesla chief executive Elon Musk and influential investors, adding legitimacy to a still young market around which t here are many doubts.
After all, Bitcoin, is just a string of numbers and an algorithm, whose value as a store of wealth and hedge against risk only works as more people acknowledge its value, something that is increasingly happening.
"Frankly, if the gold bet works, the Bitcoin bet will probably work better,” U. S. billionaire Stanley Druckenmiller told CNBC in November.
Druckenmiller s ai d he holds more gold than Bitcoin, but both offer a hedge against inflation, which is a rising concern as governments around the world inject stimulus into the economy. The preference for one or the other sometimes comes down to age, with younger investors and those in the tech industry showing up for Bitcoin, while older investors tend to prefer gold.
Fred Pye, chief executive of 3iq , which in April launched a Toronto- listed Bitcoin fund that has grown to roughly $ 400 million in market capitalization, thinks Bitcoin has an edge because it can more easily be used to conduct transactions.
“Gold’s use case is largely a store of wealth, and then it’s jewelry and possibly gold colouring for windows — there’s not a lot of uses," Pye said.
He added that supply and demand factors should work in Bitcoin’s favour as well.
As gold prices go up, it becomes economical to mine gold deposits that were previously considered too lowgrade to profitably exploit. That means increases in the price of gold should help the supply grow.
Meanwhile, Bitcoin’s supply growth rate is algorithmically fixed to drop in half every four years.
Right now, Pye said, the supply of both gold and Bitcoin is growing at about four per cent per year.
While that may persist for gold, new Bitcoin will become much harder to come by when the growth rate drops to two per cent in 2024.
“I think there’s some short- term risks to Bitcoin, but the reality is the long term is so rosy,” he said. Pye forecast that in 2021 the price of Bitcoin would hover between US$ 20,000 and US$ 30,000 and that by 2022, it would reach $50,000.
Grosskopf, meanwhile, said he believes that gold has a digital future that will improve its value as a currency as well.
“I’m still a huge believer that the biggest thing that will ever happen to gold is it will go digital,” he said, noting that such a move would allow the metal to be stored in a central location while ownership is being tracked on a blockchain ledger much the way Bitcoin is. “What digital gold will be is one standard, one denomination, stored where it’s quoted to be stored. You never have to move it, but it’s on the blockchain…. The two ( Bitcoin and gold) are going to come together.”
Grosskopf is not the only one bullish on gold’s more immediate prospects.
Sean Boyd, chief executive of Agnico Eagle Mines Ltd., the largest gold miner in Canada, told the Financial Post this fall, he could see gold push up to US$ 2,500 per ounce amid all the uncertainty in the world.
That may depend on the timeline for the end of the pandemic and a return to normalcy. Gold’s retreat below US$ 1,900 per ounce came as prospects for a vaccine improved.
Some of those who see money supply as the main determinant of gold prices may feel the damage has already be done.
At Velocity Trade Capi tal, analyst Michael Siperco wrote in December that the U. S. monetary supply has grown 1,600 per cent since 1975 whereas gold supply grew only 100 per cent in the same time period.this year, the U. S. money supply grew by 20 per cent, and his firm predicts gold will reach US$ 2,100 per ounce by 2021 and US$ 2,500 per ounce by 2025.
“If you’re trying to make an intelligent decision on whether to buy gold or Bitcoin, chances are you own both,” Pye said. “If you like gold, you’ ll love Bitcoin — that’s the ad we’re running on TV.”