The Battle Lines Are Drawn Between Gold And Bitcoin
Bitcoin had its bump from the Bitcoin ETFs, and is ready to roll over. Gold on the other hand is in the midst of a bull market as the world returns to the Gold Standard, with gold to rival the US dollar as world reserve currency and become a force in international trade. I’ll take gold over Bitcoin all day long.
Bitcoin is a much hyped bubble that is trading mostly on the promo that it is digital gold. It really serves no purpose other than as a trading vehicle. As a means to buy and sell goods and services it really has little utility because it is slow with technological challenges.
The litmus test is when or if Bitcoin can be used in a significant way to make purchases. For this to happen, it will have to become as fast to buy things as a credit card or debit card. Those cards do transactions in seconds, whereas even on a very small scale Bitcoin takes several minutes. People just aren’t going to switch if it takes so much time.
If a lot of transactions, to even a fraction of those done with credit and debit cards, it would take even longer. The promise for Bitcoin is that it could be traded and used to purchase stuff. So far, it is only for trading. It could be many years before it is used for purchasing goods and services. Will a vast amount of consumers switch, I highly doubt it.
As a trading asset, there are estimates out there that the average owner of Bitcoin has a cost basis around $50k. It is trading above that, partially due to the bump from ETFs being issued on it. The chart looks like it is now rolling over. When it drops below $50k, the resolve of Bitcoin holders will be tested.
Since the middle of March, Bitcoin has been making lower highs and lower lows. I can see it dropping under $50k and then see panic selling. After that, the next crucial level will be $30k, then $17k followed by $10k. Bitcoin is similar to the dotcom and dotbomb era. After the bubble burst, it took a long time for the tech stocks to recover as it will for Bitcoin.
It would not surprise me at all to see Bitcoin trade at below $10k in the next few years. Its only use is for trading, not for purchasing stuff, lets see how it does when the bubble bursts. It looks like it has peaked and has plenty of downside risk.
Gold on the other hand has remarkable bullish fundamentals. There is a Death Spiral of Debt caused by the Free Money Era after the 2008 GFC. The Free Money Era, followed by jacking up of interest rates to fight inflation has locked in the Death Spiral of Debt.
In real time we are seeing the central bankers in the BRICS nations putting themselves on the Gold Standard. They see the writing on the wall concerning the global debt crisis.
For much too long, the global economy has been built on debt and excessive money printing. Give politicians a rope of a perceived unlimited credit card and a money printing press on overdrive and they are sure to hang themselves. The rope is getting tighter.
This has caused rapid inflation growth and to combat that, interest rates have been raised rapidly from zero to unmanageable. Servicing the debt in the US is on its way to being the largest expense for the government. Meanwhile, they have zero restraint on spending. This is a ticking time bomb with a very short fuse.
I can see in the immediate future that gold will increasingly grow as a world reserve currency, not only in the BRICS nations, but in the G7 countries as well. The G7 countries are not prepared for the debt problems they have created.
Historically, gold was an important asset for world trade. First it will increase amongst the BRICS nations, then it will spread to all the major economies in the world.
There is a New Economic World Order coming that will have gold as a major player to back up debt, as a reserve currency and for world trade.
So far, the BRICS nations are somewhat backing up their debt with gold which has driven gold to record highs. As they move toward a real Gold Standard, with gold rivalling the US dollar as the world reserve currency and playing an increasing role in world trade, gold has to go much higher.
Ultimately, there is a global Death Spiral of Debt that can only start to heal by returning to the Gold Standard. The eastern countries are on that path and the western countries won’t like it but will be forced to move to the Gold Standard. If they don’t, they will get their lunches handed to them because the countries on the Gold Standard will gain economic power.
Now, if gold miners could increase their production to meet the demands from the transition to the Gold Standard, the move in gold could be somewhat restrained.
But the problem for the gold miners is that not enough money has gone into exploration to find new mines to replace what they mine each year. There hasn’t been enough success with exploration which can be seen in the projects in the development stages. The gold pipeline is challenged from mining, to new mine development and down to exploration.
The big gold miners are struggling to increase production while gold is at record highs. Basically, they are going deeper to find mines. Their resource grades and head grades at mines are in long term declines.
They have to go into more remote places, in challenging countries to operate mines. Permitting times have increased dramatically, as have the costs to build and operate mines.
All of these issues for gold miners have been building up for decades and it will take decades to fix them. This has caused current supply to be tight, while the demand for physical gold is increasing at a rapid pace and is in the early days of overwhelming supply.
The situation with mining gold and demand for physical gold reminds me of that old commercial when the guy drives into the muffler shop with the muffler scraping along the road. The guy at the muffler shop says “Pay me now, or pay me later.”
The physical gold muffler is scraping the along the road with gold production having peaked and starting to go into decline while gold is at record levels. Pay now, or pay more later is the theme in front of us.
I often hear people call Bitcoin digital gold, which is laughable. Bitcoin is only for trading back and forth, built on hype, with the bubble about to burst. Meanwhile, physical gold supply is tight with powerful demand.
The current gold to Bitcoin ratio is close to 30 ounces of gold for 1 Bitcoin. I can see Bitcoin drop to $10k and gold to rise into the $10k to $20k range and flip that ratio dramatically.
All the best,
Allan Barry Laboucan
Disclosure
Rocks And Stocks News does not make buying or selling recommendations. The reports are for information purposes only. Sponsors pay a fee to Rocks And Stocks News for content creation. The business model of Rocks And Stocks News is to fund research and reporting on the sector, picks and sponsors through corporate sponsorship. We are thankful to sponsors for enabling commentary free of charge to readers and viewers of the reports. When reporting on sponsors it is on behalf of the sponsors discussed in the portion of the report mentioning the sponsor. Before making any investment decision it is important for you to speak with your financial advisors to consider your risk profile. It is also important to do your homework. To help in that process, Rocks And Stocks News means to be a gateway by doing reports and interviews of management of sponsors and picks. The reports and interviews should not be considered investment advice. Allan Barry Laboucan is the founder and owner of Rocks And Stocks News, he has worked in the mining sector since 1993 and has been reporting on the sector since 2005. He has worked with and been mentored by very talented geoscientists in geology, geochemistry and geophysics. He uses the skills he has picked up during his career to assess sponsors and picks in the reports. Whether a company is a pick or a sponsor they go through the same filter and are reported on when important news is made that Allan Barry Laboucan wants to discuss on the Rocks And Stocks News platform. He may own shares in sponsors and picks for investment purposes which he discloses when discussing them in the reports.
