Last week, ETF Think Tank Contributors Michael Gayed and Mike Venuto traveled to their first in person investment conference since the beginning of the pandemic. The Money Show event brought investors and thought leaders together for three days of investment education and networking. Michael Gayed was there to discuss his intermarket analysis of the Lumber/Gold ratio; a copy of his award-winning white paper can be found on SSRN. Mike Venuto was also addressing gold in the debate with Adrian Day, on “Crypto vs. Gold.” A clip of the discussion can be found here. In today’s ETF Think Tank research note, we are sharing some of the key points from the “Crypto vs. Gold” debate.
Inherency
An interesting factor in the “Crypto vs. Gold” debate is that both seek to solve a similar problem. However, few take the time to define this inherency. Gold was used as an original form of currency and monetary standard, but due to some deficiencies and the desire of governments to print money, it’s use as medium of exchange has diminished. Crypto was born out of the financial crisis of 2008 as a means to separate money from governments and/or trusted third parties. So in the end, both Crypto and Gold are sought out as solutions to a similar fear of government intervention.
Crypto Attributes
As the first Crypto-currency, Bitcoin was born in 2009 in response to the financial crisis. There are three core attributes that support Bitcoin’s adoption as an alternative to fiat money. The first two are part of the code:
- Separate from a trusted third party (decentralized)
- Fixed Supply
The third attribute is more of a self-fulfilling paradox, in that the “network effect” has taken hold. Simply put, the Bitcoin network is now subject to the Lindy Effect:
The Lindy effect is a theorized phenomenon by which the future life expectancy of some non-perishable things, like a technology or an idea, is proportional to their current age. Thus, the Lindy effect proposes the longer a period something has survived to exist or be used in the present, it is also likely to have a longer remaining life expectancy. Longevity implies a resistance to change, obsolescence or competition and greater odds of continued existence into the future.
Wikipedia, Lindy effect, 5/4/21
Similarities
As alluded to earlier, Crypto and Gold have some clear similarities, noted in the next chart:
Differences
The differences are quite stark as well. The potential of Crypto far exceeds, in our opinion, the limited, although historically proven utility of gold.
Closing Arguments
The true winner of the debate from allocation level is that investors should consider both Gold and Crypto. The reality is that both assets are volatile and uncorrelated. From a modern portfolio theory point of view, the return streams of both Gold and Crypto can be used to optimize a buy-and-rebalance portfolio. From the point of view of a speculator or a futurist, the unknown applications and value of Crypto and Blockchain technology far exceed the utility of shiny rocks that are easily stolen.
Disclosure
The information provided here is for financial professionals only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.
All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.
Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.
All investments involve risk, including possible loss of principal.
The value of investments and the income from them can go down as well as up and investors may not get back the amounts originally invested, and can be affected by changes in interest rates, in exchange rates, general market conditions, political, social and economic developments and other variable factors. Investment involves risks including but not limited to, possible delays in payments and loss of income or capital. Neither Toroso nor any of its affiliates guarantees any rate of return or the return of capital invested. This commentary material is available for informational purposes only and nothing herein constitutes an offer to sell or a solicitation of an offer to buy any security and nothing herein should be construed as such. All investment strategies and investments involve risk of loss, including the possible loss of all amounts invested, and nothing herein should be construed as a guarantee of any specific outcome or profit. While we have gathered the information presented herein from sources that we believe to be reliable, we cannot guarantee the accuracy or completeness of the information presented and the information presented should not be relied upon as such. Any opinions expressed herein are our opinions and are current only as of the date of distribution, and are subject to change without notice. We disclaim any obligation to provide revised opinions in the event of changed circumstances.
The information in this material is confidential and proprietary and may not be used other than by the intended user. Neither Toroso or its affiliates or any of their officers or employees of Toroso accepts any liability whatsoever for any loss arising from any use of this material or its contents. This material may not be reproduced, distributed or published without prior written permission from Toroso. Distribution of this material may be restricted in certain jurisdictions. Any persons coming into possession of this material should seek advice for details of and observe such restrictions (if any).The information provided here is for financial professionals only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.
All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.
Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.
All investments involve risk, including possible loss of principal.
The value of investments and the income from them can go down as well as up and investors may not get back the amounts originally invested, and can be affected by changes in interest rates, in exchange rates, general market conditions, political, social and economic developments and other variable factors. Investment involves risks including but not limited to, possible delays in payments and loss of income or capital. Neither Toroso nor any of its affiliates guarantees any rate of return or the return of capital invested. This commentary material is available for informational purposes only and nothing herein constitutes an offer to sell or a solicitation of an offer to buy any security and nothing herein should be construed as such. All investment strategies and investments involve risk of loss, including the possible loss of all amounts invested, and nothing herein should be construed as a guarantee of any specific outcome or profit. While we have gathered the information presented herein from sources that we believe to be reliable, we cannot guarantee the accuracy or completeness of the information presented and the information presented should not be relied upon as such. Any opinions expressed herein are our opinions and are current only as of the date of distribution, and are subject to change without notice. We disclaim any obligation to provide revised opinions in the event of changed circumstances.
The information in this material is confidential and proprietary and may not be used other than by the intended user. Neither Toroso or its affiliates or any of their officers or employees of Toroso accepts any liability whatsoever for any loss arising from any use of this material or its contents. This material may not be reproduced, distributed or published without prior written permission from Toroso. Distribution of this material may be restricted in certain jurisdictions. Any persons coming into possession of this material should seek advice for details of and observe such restrictions (if any).
