This year’s Prospectors & Developers Association of Canada’s (PDAC) 2018 Convention was another success. From gauging, I haven’t seen an attendance this strong since 2006. Even though the swagger was present, I didn’t feel the ‘hungry like the wolf’ appetite. The caution flags were present and I spoke about that during my talk at the letter writer presentation. My topic was on gold versus bitcoin and other crypto’s. My slant was biased towards a higher gold and silver price but neither bitcoin nor gold are going away anytime soon. Excepts of my talk are below.
Later in the day, I had the good fortune of sitting across Rick Rule for dinner who always provides a great deal of insight and interesting conversation. Others at the table included a handful of newsletter writers and some Sprott fund managers/employees. You can imagine the boisterous atmosphere.
The next day was filled with media interviews and the Stockhouse event. The gathering was once again very well attended and organized – a showcase for people to connect. Kudos to Justin Meiklem and the Stockhouse team for putting on another stellar gathering.
I am looking forward to PDAC 2019 and to the rest of what 2018 has in store.
HIGHLIGHTS OF MY TALK ON GOLD VERSUS BITCOIN:
Here’s what I believe about the crypto market:
- The market for cryptocurrencies is irrationally exuberant and volatile as witnessed recently by both the sudden decline and rise in prices
- Very few people in the media understand what’s going on although that doesn’t stop them from making judgement calls
- Very few people in finance understand what’s going on but some really get it
- And even very few people buying cryptocurrencies understand what’s going except your 14-year old kid
Having said that …cryptocurrencies are gaining in popularity to mania proportions…why?
As in every mania in history, it is currently rational to be irrational i.e. the Tulip bulb mania or the dot.com bubble. And this falls into the realm of emotional investing which was the subject matter of my talk last year. It seems that investors just love something they can’t understand as we have witnessed in previous technology mania’s. We humans love controversy!
It seems like understanding of Bitcoin’s mechanics remains in short supply. Bitcoin makes even smart people feel dumb.
If you hold the same narrative that I do that there will be a stock market and economic crash in the next 2-3 years, then holding physical precious metals during a crash should be the answer, as stocks and cryptocurrencies (which in many ways behave likes stocks) free fall. The stock market correction we had in early February took with it crypto currencies. Bitcoin fell from about $12,000 to under $7000 before recovering.
Why do I believe that there be an eventual stock market crash? The US is in debt to the tune of about $20 trillion and the interest rate is increasing meaning the debt will increase even more and will the federal reserve be able to make good on interest payments? The central bank is out of bullets. The 2008 crash was derivative and real estate based. I believe the next crash will be debt based. During 2008, stocks crashed but gold and silver bullion held its value.
If you look at almost every sector in the market from housing to the equity market to the crypto and cannabis space, they all have increased considerably over the past few years. Logic dictates to buy low and sell high but human nature sometimes operates in a pathological fashion and the herd mentality sets in. To make money, one needs to do the opposite of the herd. Serially successful investors purge out the fluff and believe in and act on the colloquial statement of buying low and selling high. For example, if you look at the price of silver, it has stayed relatively dormant for the past few years – I believe that is about to change course.
Let’s compare and contrast that with cryptocurrencies. The Cryptocurrency vs. Gold comparison reminds me of the famous Aesop fables. Particularly the one about the hare and the tortoise. The tortoise (Gold, in this case) tired of the hare’s (cryptos, in this case, obviously) arrogance, challenges the hare to a race. After the hare gets a speedy start and leaving the tortoise crawling slowly in the dust, he decides to take a nap, sure of his win and dominance over the tortoise. Only to wake up to find the tortoise slowly crawling across the finish line.
This is testament of the trying emotional and financial roller coaster that is transpiring in the cryptos. One minute you are discussing the options of liquidating the coins and buying a Bugatti Veyron, the next you want to trade the coins for a toy Bugatti.
2017 was indeed the year of cryptocurrencies. The growth of the crypto market grew to a capitalization of over $500 billion but it pales in comparison to $8 trillion worth of physical gold valuation and any so-called pundit making a comparison that it is going to replace gold as a store of value is as crazy as John McAfee himself.
Investors generally follow trends and ‘what’s hot’ rather than looking for value. Warren Buffett infamous philosophy to us is to never to invest in anything that we don’t understand. Bitcoin investors are paying Buffett no mind and ironically have been reaping rewards.
But I believe the easy money has been made in the two juggernaut crypto’s: Bitcoin and Ethereum.
As Rick Rule stated in a recent interview:
The ability to create and market an algorithm, and market it as a dream, converting the promoters ability to market the dream, in return for other peoples earned wealth will attract some very smart, and likely stupendously successful scam artists, who just like central bankers, will bill savers and investors out of billions of other currency units. Governments hate this, they want a monopoly on fraud and extortion, but in this circumstance, they are entering into a battle of wits, under armed. http://www.mining.com/web/interview-rick-rule-president-ceo-sprott-u-s-holdings-inc/
So gold vs crypto which is better to invest? I believe the answer is both! No, I’m not a politician.
Both gold and crypto deliver us from government ineptness and central banks that have lost control of borrowing and spending. I think it is prudent to believe in both.
I believe that cryptos will NOT replace gold as a store of value and I believe that in the coming years, on a percentage basis, the price of silver will outshine gold but that is for another presentation. Inherently the masses invest in something that is sexy as recently seen by cannabis and crypto related stocks but sexiness eventually fades away and fundamentals have to be proven up.
I know Bitcoin can be confusing.
Let me leave you with this:
What did the dollar say to the bitcoin?
Hey, you make no cents.
Dr. Kal Kotecha
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