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Bitcoin vs Gold
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Bitcoin vs Gold

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Bitcoin vs Gold



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Time to re-read Cryptonomicon.

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An interesting video. It proposes Bitcoin is never going to be a currency because it has no intrinsic value. It is compared to the dollar, which is also backed by nothing but has intrinsic value because dollars must be used to pay taxes. Dollars boil down to taxes. But what does gold boil down to? What is the intrinsic value of gold?

In 2004, the gold etf GLD was started and there was a rush to buy partly due to the new ease of ownership. Price overshot to 1800/oz and receded to around 1300. Granted there was a recession and massive money printing going on thru this period. It demonstrates there is a component of price which is "timely desire" in addition to "intrinsic value". Presumably price would never fall much below intrinsic value. So purchasing gold today, given its volatility, one has to wonder what is gold's intrinsic value?

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The US Dollar is backed by the good will of the US Government, and the US represents approximately 25% of the World's GDP. While I understand that people might not value that, and that a lot of people would like to get away from the dollar as the worlds dominant currency, it's still a lot more than almost any other currency and definitely more than crypto's which literally are backed by nothing - not even goodwill. I personally think comparing the two is farcical. (I'm not a crypto hater - I just equate the current crypto mania to the internet in the 90's - Google wasn't even founded until 1998. Most of the initial internet companies are gone/failed, and will only ever be remembered by old people like me!)

With regards to Gold's intrinsic value. I would say that it's production cost would be a good place to start. Real Vision TV (subscription required) did an excellent two or three part documentary on Gold if you can watch it.

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SMCJB View Post
..............With regards to Gold's intrinsic value. I would say that it's production cost would be a good place to start.

I did a bit of research into "what an ounce of gold costs to produce" and naturally found a tower of babel as the miners want to understate their costs to make themselves seem profitable to shareholders and overstate costs to minimize taxation. It is a collision of GAAP vs AISC (ie. generally accepted accounting practice vs. all-in sustaining costs), the later being an industry concoction to make themselves look good to investors. Here are a couple of links:
Exactly how much does it cost to produce an ounce of gold? | Financial Post
https://www.prnewswire.com/news-releases/new-gold-delivers-on-2017-production-an...8-outlook-669627313.html

Newmont Mining shows a loss on their 2017 financial statement.
Interactive Analyst Center*?


I thought a bit about it from a macro view and concluded that if the miners were making money their share price would reflect it. So here is a comparison of GLD (a gold bullion etf) vs RING (a miners etf touted to be 90% gold miners). Looking at the 1,3 and 5 year annual returns, gold mining seems to be a slim to average business. So I conclude that it costs about the spot price minus a few percent to mine gold.
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10 years ago gold was $800/oz today it is $1300/oz so have production costs gone up this much? I think it must be that demand has gone up and it takes more capital (locations, machinery, regulations) to keep up. Like to go faster you need a more powerful, and expensive, engine in your car.
If demand falls then the miners quickly shut down. There is some price regulation there, but price could fall further if people simply decide it is not worth the current price. A gold crash. What would produce that?

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There are several interesting interviews out there with Rick Rule of Sprott Global Resource Investments Ltd. (Macro Voices (free) & Real Vision (subscription) are two I have seen/listened to). He explains how cyclical mining operations are. If your interested in this field you may want to look them up.

Finally @myrrdin started a metals thread a while back. Could be an interesting discussion to have over there.

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Bill Gates and Warren Buffet comment: Bitcoin is a greater fool strategy. It has no intrinsic value.
I find their opinion interesting because they have so much money, its protection must be of interest to them.

Gates also adds "The government's ability to find money laundering and tax evasion and terrorist funding is a good thing," The point being that Bitcoin is not safe being in jeopardy of government shutdown.

https://www.cnbc.com/2018/05/08/what-happened-when-bill-gates-got-bitcoin-as-a-birthday-present.html

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Ouch, this video is from the November, 2013...
We had seen the Great Bitcoin Pump 2017, but had not seen the Great Depression 2017....

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From the BIS, Bank for International Settlements, the central bank of central banks:
Cryptocurrencies are not scalable and are more likely to suffer a breakdown in trust and efficiency the greater the number of people using them. "Not only does this call into question the finality of individual payments, it also means that a cryptocurrency can simply stop functioning, resulting in a complete loss of value".

https://seekingalpha.com/news/3364456-bis-latest-warn-cryptos?ifp=0

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His speech is brilliant. During the 12 minutes, he covered almost all facts and aspects of Bitcoin, if not more. And I totally agree with all his words. In fact, Bitcoin is not the money in its classic definition. For example, you can't touch it with your hands because you don't own it as paper money. It resides in the space of cryptography. But it doesn't mean that BTC is a bad investment. I also believe that it has bright future.

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