The thrown-down between bitcoin skeptic Peter Schiff and bitcoin bull Anthony Pompliano was an entertaining debate. Yet while everyone focuses on how bitcoin — and I’ll explain why Peter Schiff is correct – he was also wrong about gold.
Peter Schiff’s primary point is that bitcoin has become akin to a religion. He insists that those holding bitcoin are living in a fantasy world, and believe they will get rich by holding on to bitcoin.
Whether religion is an appropriate analogy or not, the point remains the same: that bitcoin bowls are pushing all-in based on a number of arguments that don’t stand up to either logical or economic reality.
If we were to set aside every single bearish argument for bitcoin, Peter Schiff still has a very good point when he mentions that
“when you’re in a bubble, you can’t see the bubble”.
Whether bitcoin has any future value or not, whether it is the pending replacement for fiat currency or not, and whether it is the second coming of the Messiah or not, there is no basis for bitcoin to be worth its current trading value.
This is Peter Schiff’s ultimate point about being in a bubble.
A bubble implies that the price of a given security or securities has vastly exceeded their intrinsic value. It also implies that the current trading price exceeds any reasonable notion of a discounted future value.
With the exception of collectibles, every asset can be pegged in terms of value in some way, as can its possible future value. When we look at the dot-com bubble of 2000, the entire stock market was in a bubble because investors were placing impossibly unrealistic current and future values on thousands of securities.
Yet bitcoin bulls will readily admit that the value of bitcoin is not tied to anything. It has no intrinsic value so how could it be in a bubble?
This is logically fallacious.
The very fact that bitcoin is not linked to any hard asset with a determinable value by definition means it is not worth anything.
Its value is determined solely by the price of the last trade, which is based entirely on speculation. What does X believe Y will pay for it? What does Y believe Z will pay for it?
Bitcoin is thus valued solely on the basis of psychology.
Bitcoin bulls will say,
“So is everything else!”
That’s not true. As mentioned, every other asset has a determinable value based on the present value of its future discounted cash flow.
Where Peter Schiff gets things wrong is his love for gold.
Gold has a hard asset is also tied to psychology. However, gold does have proven long-term value as a store for wealth. This has been the case for thousands of years.
That does not make gold a good investment. Gold has no direct ability to generate cash flow. It certainly can be used as collateral for which someone can borrow money and generate cash flow from that leverage, but that’s not direct cash flow.
The real return on gold over the past 200 years is about 160 percent or about 0.8 percent per year. Even as an asset that is not correlated to the stock market, it has provided a very poor return.
Yet I will take gold any day over bitcoin if I am forced to buy and hold either one. Bitcoin could go to zero tomorrow. Gold never will.
Last modified: June 23, 2020 2:39 PM UTC