First to start this off.
I am just a 26-year-old that interviews CEO's, mostly from the resource sector. Undoubtedly that has led to an inherent bias toward commodities over other safe haven investments, particularly crypto. That bias was also fueled by being one of numerous Canadians that saw the complete loss of their entire crypto investments back in 2018. Quadriga was the reputable platform where you could buy Bitcoin and crypto in Canada. It had the best rates and was really the only option at the time. You can read about the saga in the recent book, The Bitcoin Widow, by the wife of the founder of Quadriga. In spite of how tragic it was for so many Canadians to watch their investment money just disappear, it is an interesting tale to read. In short, the founder died unexpectedly with investors crypto holdings on cold storage. Luckily my initial investment was only $2,000 and had only grown to $4,700 when it effectively plummeted to $0 overnight. It became permanently inaccessible. A hard lesson to be learned at the time and one which the various crypto exchanges have come to eliminate. Still, it left a sour taste in my mouth.
I imagine my experience is similar to Canadians that supported the trucker protests suddenly learned that all of their financial assets were frozen. Or the recent experience Russians faced when the US froze their international reserve assets and locked the country's banks out of the international financial system. Or, even more recent, the London Metals Exchange simply halting the trading of nickel and retroactively cancelling all the trades from the prior day. What I am getting at is that things can happen at the flick of a switch in this strange world we live in. I know any true hodler of cryptocurrency keeps the majority of their assets on a cold storage ledger. But still leaves you to wonder what government decree or unforeseen event might cause even those folks to one day look at the computer screen and see their investment just gone.
I appreciate that Bitcoin has the potential to undermine the USD, the current world reserve currency. It isn't close yet and the idea is a little far-fetched, but not that far-fetched! Think of the implications of even the remote possibility. I certainly appreciate that I may be looking at all of this from the wrong perspective. Unbelievable upside potential? No question. Even if Bitcoin takes a small fraction of the USD market share of currency, that is still an amazing outcome. Maybe it is the people's money - or the future currency of the internet and the masses will adopt it. It has a built-in code to limit supply which eliminates the ills of fiat currency. But you have to think that at some point, the powers that be will sense the threat that the technology poses and will seek to undermine it. China was able to do it. I really do hope it is a subtle transition but the super-bull case for Bitcoin is simply too disruptive for me to feel comfortable with at the moment. Bitcoin has a great algorithm, but it doesn't have the power of government decree or military might. So great risk will always persist.
I don't pretend to be a crypto expert and that is a big reason why I no longer have a horse in the race. I re-entered the crypto space a couple of years ago after licking my wounds from Quadriga. I find myself again unexposed to the asset class. I might miss out on astronomic potential but my heart is not in it enough for the fight as the conventional and digital worlds collide. Bitcoin can undermine the United States Dollar. Maybe. Just maybe, that was the whole intention of Bitcoin?
We have no idea who Satoshi Nakamoto is, and even less idea of the scope of the original vision. I wonder if it was a quaint idea that expanded far beyond the imagination of the creator, or if this is the fulfillment of the intended design. It is a fun thought to ponder. A plan to escape a system where the United States enjoyed the amazing power of having the world reserve currency, but was no longer restricted in how it exercised that power. Just looking at who is mining Bitcoin and how that has changed recently is really interesting and can lead to many ultimate conclusions.
I love the Bitcoin halving cycle and it is almost a no brainer as an investment right? A self-constraining system. It is those brutal halving cycles that caused the departure from the Bretton Woods system in the early 1970's. Some people act like Bitcoin is digital gold. There is no question that there are many similarities between the two. But at the end of the day, gold and Bitcoin are two different asset classes. In the same way that gold and gold miners/exploration companies are two different asset classes. I personally like gold miners and exploration companies because of their potential for phenomenal returns. Crypto has provided some phenomenal returns too, but I see many arbitrage opportunities in the commodity space that I no longer see or can exploit in the crypto space. Gold is a strange asset. It is like a lion in the Serengeti, mostly laying around doing nothing and that is a good thing. But when the hunt begins and the lion awakes from its slumber, it is a spectacular sight to see and the effects of the big moves in gold cascades down across multiple classes of gold-related assets.
The recent and historical volatility of these exploration and gold miners have deterred many previously burned investors away from the industry, and understandably so. Additionally, Canadian markets allowed too many sham mineral exploration companies to continue on the exchange, many lacking fundamental soundness of holding nothing but moose pastures. But bad eggs and volatility also creates great opportunities that hide amongst the plethora of moose shit. Those that both are diligent and patient can see some crazy returns. That is why I choose gold over Bitcoin. I talk to CEO's of these companies and have devoted time learning about this space. I have learned a lot and still have a lot to learn :p.
But I do believe volatility is finally turning in the favour of commodity speculators. Too much money has been printed in the last two years around the world during the pandemic. The levee has to break at some point, right? And sure, some people may flee to Bitcoin. Sure, even entire countries may turn to Bitcoin, like El Salvador has. But at $2,000 gold and the fact that all this currency that was printed during this global pandemic creates an opportunity that I cannot ignore. We are seeing inflation now, and it is not the Russia/Ukraine war that is driving it. The war is the catalyst that has lit the tinderbox of a worldwide 50-year fiat currency bender. At some point the partying ends and the hangover sets in. When it does, I want to be in gold.
So ignore the explanation-du-jours for why we are seeing such high inflation. There will be no shortages of excuses. The answer is simply: We are seeing inflation because too much money was printed. It is that simple. Doesn't matter the causes, or the good intentions for doing so. It is just a fact. The out of control printing of money guarantees inflation, it is only a question of when and the intensity with which it will hit. And we can all see it has already begun.
We saw Russia get removed from the SWIFT system in an instant. You think China isn't watching and planning? The relationship with China and the US is a strange and precarious one, given China has so many US dollars on their balance sheet and the fact they are a direct competitor to the United States. These two countries are world superpowers that are bound to grind against eachother. While the world runs on dollars, China has to play by America's rules - for now. But think of the rerating potential of gold if China came out with a gold backed digital currency. I am not sure how much gold China has, but it's supply is growing not shrinking.
China aside. Let's look at some currencies that devalued over the last couple of years. Venezuela, Turkey, maybe your own? I am Canadian, but Visual Capitalist created a nice chart of the USD purchasing power. All currencies are experiencing painful inflation! If you are a student of history, you are probably aware of what happens to the price of gold relative to a devaluing currency. Imagine all currencies undergoing this extreme devaluing event. It is now happening before our eyes.
https://www.visualcapitalist.com/purchasing-power-of-the-u-s-dollar-over-time/
We are due for change. The Bretton Woods system had its flaws, and I understand why no country wants their currency backed by a single commodity like gold. Gold might not be the end-all solution. But having currency not backed by gold means gold continues to have strong upside potential. We are still in a world full of debt and easy money creation. I said Bitcoin could undermine the USD, but gold has the same ability. Will the new power of Bitcoin outperform the age-old power of gold? I am not sure. But gold equities are already intertwined with the government systems. I play by their rules and that is my preference. I like having my money in my Tax Free Savings Account(TFSA) here in Canada in our banking system. Not getting taxed. Can it go to shit? Perhaps. But that is a safe risk I am willing to take.
Perhaps the hodlers will have the last laugh, but even during a currency transition, I will still own a piece of an underlying business tied to a defined commodity. Those companies will mine for gold; explore for gold; or personally my favourite, collect a royalty on the mined gold. Royalty companies are great because they do not have the inflationary pressures like miners do. Mining remains a capital intensive business and if I piqued your interest, I suggest you look into royalty companies as your way to maybe dip your toe into the commodity space.
Would love to hear your feedback! Message me on CEO.ca and give me a follow!
Cheers
@canadiankyle
