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This week has not been great for gold. Down almost 13% from it’s local high in August the precious metal is looking weak in the near term. While this may be an indicator for some to buy more for me it marked the end of a years long decision to sell.
If you’ve followed my narrative since 2019 you’ll know I was a huge proponent of gold:
It’s a hard asset with scarcity (limited supply economics)
It’s used globally as a store of value
It has relatively low volatility
It performs well in inflationary and deflationary environments (i.e. currency instability)
Against the macro backdrop that’s been building since the send of the GFC gold has made sense to me as a hedge in a broader portfolio, but it has notable drawbacks:
It’s hard to store & transact with
Supply is not fixed nor known with extreme accuracy
The market is manipulated via trillions in derivatives and futures (“paper gold”)
It is a political metal across the developed and underdeveloped world
These drawbacks are not minor and have real impacts but the reason people have put up with them for decades is that there was nothing better. Enter Bitcoin. Bitcoin does everything gold does and more. It does it faster, more efficiently, and with more transparency.
I started the precious metals (PMs) segment of my portfolio as a corollary to the hypothesis that hard assets would do well in the coming years due to extreme currency instability. This hypothesis is mainly indexed towards Bitcoin and digital assets but gold made sense and also served as a volatility hedge for the portfolio.
For a long time it appeared gold and Bitcoin would live in harmony but I no longer believe that to be the case. Bitcoin is the “faster horse” and is poised to eat gold’s lunch.
Bitcoin has defined scarcity, there will only ever be 21M BTC (less if you account for lost coins). It is beginning to be used as globally as a value storage mechanism both privately and publicly. It is very liquid. It can be transferred in a matter of minutes across the world bypassing costly intermediaries (time is a fee too). It is a hard asset. It cannot be controlled by politics because it is decentralized, it does not exist within the control of nation states.
The world is finally waking up to these realities, the chart below shows the beginning stages of a decoupling…
We have now entered into a world where Bitcoin and gold are competitors vying for dollar allocations. Bitcoin wins against gold across the board the only roadblocks lie in systemic issues like financial plumbing, regulation, and psychology.
All of these barriers will fall as Bitcoin’s $350B market cap slowly eats away at gold’s $9T dominant position.
Have a great Thanksgiving Holiday and for those outside the US have a great weekend, I’ll talk to you all again on Tuesday.
Biden Picks Janet Yellen for Treasury Secretary – President-elect Joe Biden plans to nominate former Federal Reserve Chairwoman Janet Yellen, an economist at the forefront of policy-making for three decades, to become the next Treasury secretary, according to people familiar with the decision… (via WSJ)
This is hugely net bullish for Bitcoin, Yellen has a proven track record of preferring higher inflation rates
'Everyone should put 2% to 3% of their net worth in bitcoin': Mike Novogratz – “Bitcoin is for everyone,” he said in an interview with Yahoo Finance Live. “Everyone should put 2% to 3% of their net worth in bitcoin and look at it in five years, and it’s going to be a whole lot more.”… (via Yahoo Finance)
🦃 How to Answer Your Family’s Bitcoin Questions This Thanksgiving 🦃 – It happened three years ago. The last time bitcoin went gangbusters, conversations in dining rooms across America were less about giving thanks than the fear of missing out... (via CoinDesk)
The Portfolio Rundown
This week I reduced my allocation to PMs significantly moving from a 15% allocation in gold and silver to a 3% allocation to cash and gold. This will eventually become a 5% all cash allocation to serve as a volatility hedge and give me the ability to buy any significant pullbacks. Gold’s role in my portfolio has ceased for the time being.
The reallocation was mostly pro-rata across the digital asset segment but I indexed more towards alt-coin positions I felt were under allocated.
Nothing in this email is intended to serve as financial advice. Do your own research.
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