Bitcoin vs. Gold Prices

[BobK71]

But how is it possible? Or rather, what do you mean by asset price inflation? If you mean something like Producers Price Index (PPI), it should in fact be somewhat preceding the consumer price inflation. Consumer prices depend on the costs of production but today's prices of goods are determined by the past prices of raw materials. This is likely the reason why it may look like the PPI is higher than the CPI at a given moment since it lags behind the PPI.

So it seems we have a misunderstanding...  Asset price inflation refers to the rising values of financial assets -- stocks, bonds, real estate, what have you.  What really matters is the total amount of paper wealth in the economy, so we must also consider the creation of money in the (shadow) banking system as well (under generally low policy interest rates during this period.)  This is as opposed to the price of goods and service, things we can actually use (ie consumer prices.)

In the modern world system, what often happens is that there is a lot more total paper wealth than real wealth (goods and services), due to the incentives for the elites to issue paper wealth and use state power to support their values artificially.  Over the last two decades, this problem became extreme, and the only other period of modern history that compares with it was the period before the Great Depression.

So I was referring to how this problem came about on the ground, that is, asset price inflation was much higher than consumer price inflation over the last 20 years.

[slyfox]

The last time I did this analysis, gold was a thousand times more expensive than Bitcoin, if we compare the same proportions of total supply.  By now, Bitcoin has risen 30-fold, and so gold is only 30 times more expensive.

Of course, I was roundly dismissed for speculating Bitcoin could get anywhere near a six-figure price in dollars.  If I was criticized for being too bullish on Bitcoin, today I might be seen as too bullish on gold.

How to answer the question -- where to from here?  As I wrote recently, gold is objectively a better money for securing savers' freedom from governments and central banks.  So, if the long-term price ratio is 10 to 1 in favor of gold, Bitcoin can still go up 3 times.  It'd still be a great return by the standards of any asset, but Bitcoin is not quite as compelling as it used to be.

Especially, many early owners of Bitcoin, now flush with capital, who are also sympathetic to gold, might decide to sell some Bitcoin and buy gold at these prices.

We have to be careful here.  This entire analysis was based on the (pretty common) assumption that governments and central banks have nothing to do with gold and Bitcoin prices, and that the future of Bitcoin is to be another limited-supply monetary asset like gold, but at an appropriate relative price.  (The reality, at least with gold prices, is of course the opposite.)

So, the real question is what the Western elites want (and what China and Russia want, if they're able to counter the West in the field of monetary engineering.)  If Western debt levels and resulting economic/social/political problems are so bad that the elites have decided to use cryptocurrency to effect a reset of the entire system, to effectively wipe out their debt and start afresh, as just after World War II, then the sky is the limit for Bitcoin and cryptos.

If, on the other hand, the Western elites are only preparing for such a reset by taking advantage of cheap crypto prices so far, then we have to watch the relative price to gold.  The rise of Bitcoin, so far, is consistent with this scenario too.  From here on, our thinking might have to change.

For the answer to that question, watch the news closely for the signs!

So I think it is safe to assume that the safest strategy is to hold both bitcoin and gold that way no matter what happens you will be a winner, not as big of a winner if you were to put all your money only in bitcoin or gold but still a big winner at the end, I do not see anything wrong with that strategy except that you will need a bigger capital to perform it effectively.

[DanWagner]

I don't really care about prices atm , but i think gold is gonna lose popularity with the years. Maybe to bitcoin or an other new asset.

[BobK71]

So I think it is safe to assume that the safest strategy is to hold both bitcoin and gold that way no matter what happens you will be a winner, not as big of a winner if you were to put all your money only in bitcoin or gold but still a big winner at the end, I do not see anything wrong with that strategy except that you will need a bigger capital to perform it effectively.

I agree with your general philosophy, but we also have to decide the ratio of the holdings.  Right now, the total market cap of all cryptos is less than 10% of the market cap of gold.  If the Western elites want to promote cryptos as another fall-back money like gold, they'll have to raise the market cap.  So IMO we should be heavier on Bitcoin/cryptos than gold.

And the price of gold itself is heavily suppressed by the elites (without which their system couldn't possibly survive -- see books 'The Gold Wars' and 'The Gold Cartel' for serious evidence.)  But they lose control and/or allow gold to go up during the worst of times (see my post The Real Reason to Hold Gold and Bitcoin.)  So if you're young enough and have a long-term horizon, you should at least get even with inflation, but only over the long haul.

Also, it's funny how the centuries-long gold/silver standard period was a time when the elites successfully suppressed the price of gold (to a fixed currency value), while today that has failed and the elites are forced to (effectively) devalue currency against gold on a continuous basis, so that gold went from $35/ounce in 1971 to 30 times that today.  But if you listen to the media, economists, etc., you hear the opposite of the truth -- that gold was blessed by officialdom as money during the gold standard, and it's just a barbarous relic today.  The entire system is deceptive.

[Hell-raiser]

But how is it possible? Or rather, what do you mean by asset price inflation? If you mean something like Producers Price Index (PPI), it should in fact be somewhat preceding the consumer price inflation. Consumer prices depend on the costs of production but today's prices of goods are determined by the past prices of raw materials. This is likely the reason why it may look like the PPI is higher than the CPI at a given moment since it lags behind the PPI.

So it seems we have a misunderstanding...  Asset price inflation refers to the rising values of financial assets -- stocks, bonds, real estate, what have you.  What really matters is the total amount of paper wealth in the economy, so we must also consider the creation of money in the (shadow) banking system as well (under generally low policy interest rates during this period.)  This is as opposed to the price of goods and service, things we can actually use (ie consumer prices.)

In the modern world system, what often happens is that there is a lot more total paper wealth than real wealth (goods and services), due to the incentives for the elites to issue paper wealth and use state power to support their values artificially.  Over the last two decades, this problem became extreme, and the only other period of modern history that compares with it was the period before the Great Depression.

So I was referring to how this problem came about on the ground, that is, asset price inflation was much higher than consumer price inflation over the last 20 years.

Got it. But what you call asset price inflation may be another way of injecting money into the real economy. Look, you can inject money via banks by lowering interest rates, as you duly noted, so that banks give out more credit to companies. But if companies don't want to borrow, you can give them money via financial markets. For example, when the Fed ran its QE's, money went to the financial markets, which caused what you call asset price inflation, but this didn't trigger inflation in the prices of goods and services.

[BobK71]

Got it. But what you call asset price inflation may be another way of injecting money into the real economy. Look, you can inject money via banks by lowering interest rates, as you duly noted, so that banks give out more credit to companies. But if companies don't want to borrow, you can give them money via financial markets. For example, when the Fed ran its QE's, money went to the financial markets, which caused what you call asset price inflation, but this didn't trigger inflation in the prices of goods and services.

I'll understand if you prefer not to call asset price appreciation 'inflation'.  It's just terminology.  (The Economist magazine uses the term asset price inflation, so I thought it must be pretty common.)

In any case, we have a lot more financial wealth than real wealth (the stock and future stream of goods and services) at current prices.  In the longer term, one way or another, goods and services prices must eventually come up to match the financial wealth, or, even worse, asset values collapse and we get another depression.

My thesis has been that, in the relatively good scenario, asset price inflation will eventually become consumer price inflation.  So it's not really enough just to measure the latter.

In many ways, what we have is worse than old-fashioned consumer price inflation due to printing and borrowing money by the elites.  A small minority of people hold a lot of wealth on paper, thinking they can live so many years with their wealth, but that is all based on today's prices, which are a result of various schemes by the global elites.  (E.g. developing countries holding down their exchange rates with implicit agreement by the Fed and the ECB.)  So we have a combination of a financial bubble and a social time-bomb from the inequality and unfairness of this system (which brings down working class people in rich countries too.)  Future inflation is the best possible outcome from this mix.

[NeverSop]

in my opinion bitcoin is still a champion and very profitable than gold, the total supply that bitcoin possesses is definitely less than gold and it will definitely make bitcoin prices very easy to rise and fall in contrast to the gold that its availability is unlimited.

As an investor I would choose bitcoin instead of gold although gold investment is stable and less risky. The value of a bitcoin is much larger than an ounce of gold and I also choose to invest in bitcoin because it gives me more profit despite the risk but I accept this, because the risk is the most interesting thing in business.

[btcjocan]

in my opinion bitcoin is still a champion and very profitable than gold, the total supply that bitcoin possesses is definitely less than gold and it will definitely make bitcoin prices very easy to rise and fall in contrast to the gold that its availability is unlimited.

As an investor I would choose bitcoin instead of gold although gold investment is stable and less risky. The value of a bitcoin is much larger than an ounce of gold and I also choose to invest in bitcoin because it gives me more profit despite the risk but I accept this, because the risk is the most interesting thing in business.

I think if we reffer on  business bitcoin is really has an advantages than gold because bitcoin has the unstable price that is really fit for buy and selling process of gaining.But if we talk about price stability I think gold is better than bitcoin well the decision is our the choices is always to be work upon.

[BobK71]

I don't really care about prices atm , but i think gold is gonna lose popularity with the years. Maybe to bitcoin or an other new asset.

Gold and silver have the unique attribute that their scarcity is secured by physics rather than code and data, so I think there will always be a special role for them.

And it also helps that you can't create alt-precious-metals everyday!

[South Park]

I don't really care about prices atm , but i think gold is gonna lose popularity with the years. Maybe to bitcoin or an other new asset.

Gold and silver have the unique attribute that their scarcity is secured by physics rather than code and data, so I think there will always be a special role for them.

And it also helps that you can't create alt-precious-metals everyday!

This is not entirely true, yes gold and silver are uncommon due to being heavy elements created only when a star goes supernova but the universe is huge, once humans are able to get out of earth and begin to populate other planets natural resources will stop being a limitation, this is why we will need something like bitcoin because no matter what you do there is a limit in the amount of coins.

[--DarkSecrets--]

I don't really care about prices atm , but i think gold is gonna lose popularity with the years. Maybe to bitcoin or an other new asset.

If you will just make an analysis, bitcoin and gold really do have that same attribute of becoming an asset iminvestment for trading. But aa you can see, the entirw features of the two are directly different.
Gold, after a very long time, has been eyed by many people, those who are seeki ng for monetary richness. Bitcoin is on trend and people are excited to earn for bitcoin

[Hell-raiser]

Got it. But what you call asset price inflation may be another way of injecting money into the real economy. Look, you can inject money via banks by lowering interest rates, as you duly noted, so that banks give out more credit to companies. But if companies don't want to borrow, you can give them money via financial markets. For example, when the Fed ran its QE's, money went to the financial markets, which caused what you call asset price inflation, but this didn't trigger inflation in the prices of goods and services.

I'll understand if you prefer not to call asset price appreciation 'inflation'.  It's just terminology.  (The Economist magazine uses the term asset price inflation, so I thought it must be pretty common.)

In any case, we have a lot more financial wealth than real wealth (the stock and future stream of goods and services) at current prices.  In the longer term, one way or another, goods and services prices must eventually come up to match the financial wealth, or, even worse, asset values collapse and we get another depression.

My thesis has been that, in the relatively good scenario, asset price inflation will eventually become consumer price inflation.  So it's not really enough just to measure the latter.

But I don't understand how the former (asset price inflation) is going to translate into the latter (consumer price inflation). It would be nice if you explained in short the transfer mechanism if there is any. Look, when the Fed poured trillions into the financial markets in late 2000's and early 2010's, it didn't turn around as consumer price inflation. The Fed had managed to keep the inflation rates on a tight rein. So why should today or tomorrow be different?

[Lwtelencio]

So, the real question is what the Western elites want (and what China and Russia want, if they're able to counter the West in the field of monetary engineering.)  If Western debt levels and resulting economic/social/political problems are so bad that the elites have decided to use cryptocurrency to effect a reset of the entire system, to effectively wipe out their debt and start afresh, as just after World War II, then the sky is the limit for Bitcoin and cryptos.

If, on the other hand, the Western elites are only preparing for such a reset by taking advantage of cheap crypto prices so far, then we have to watch the relative price to gold.  The rise of Bitcoin, so far, is consistent with this scenario too.  From here on, this assumption may be problematic.

This question becomes my concern a few months ago when bitcoin started to gain a tremendous value within weeks.
Whoever invests Million of dollars into crypto-world at the cheaper price could harm its price after it reaches the peak, especially at this point, due to bitcoin price increase rapidly like $1000 per day. It won't stop soon imo as bitcoin futures still not activated, but when the correction comes, it may hit the market so hard. The only thing that may hold bitcoin price is people who believe in bitcoin as an asset, commodity, currency, or a better monetary system compare to fiat currency. At least, Million of dollars have been spent in this market, people don't want to lose their investment, especially for miners and exchanges.

Gold was used in the old days to earn money now we have bitcoin and it has more potential to give its investor huge and secondly gold investors are not now in huge amount everyone here is now wanting to earn money in smaller time span and this desire of people is giving bitcoin use a push and those who heard about it are now investing into it after seeing the practical results of bitcoin and gold is now an ancient way.

Yes your truly correct!Gold is nice because when I start to born in this planet we considered the value of gold and how expensive it is but the fact is I'll never experience to earned gold.Unlike Bitcoin even if I'm newly know it but the impact and the changes of my life was very big as in truly amazing apparatus to create my future shining like a star.

[BobK71]

This is not entirely true, yes gold and silver are uncommon due to being heavy elements created only when a star goes supernova but the universe is huge, once humans are able to get out of earth and begin to populate other planets natural resources will stop being a limitation, this is why we will need something like bitcoin because no matter what you do there is a limit in the amount of coins.

True, and in fact you don't even need to go that far.  Science has already succeeded in using radioactive reactions to create gold (so alchemy has succeeded!)  So the currently very high cost of such lab work will become an upper bound of gold prices.

But all of these ventures are today expensive (or speculative,) so gold holders need not worry at this point.

The important thing is that the special commodity of money arises naturally from economic activities, since barter is so inconvenient.  If and when all monies have lost trust in one way or another, the economy will use a commodity, if it has to (tobacco, sea shells, etc. have all been used in the past.)  The state will of course always try to issue its currency, but due to the inherently perverse incentives for the issuers of state currency, there will always be a role for non-state money.

[BobK71]

But I don't understand how the former (asset price inflation) is going to translate into the latter (consumer price inflation). It would be nice if you explained in short the transfer mechanism if there is any. Look, when the Fed poured trillions into the financial markets in late 2000's and early 2010's, it didn't turn around as consumer price inflation. The Fed had managed to keep the inflation rates on a tight rein. So why should today or tomorrow be different?

There are many possible pathways, and the current financial inflation hasn't yet gone into consumer price inflation, so predictions are hard.  (Further complicating the scene is that developing countries often end up absorbing a lot of the financial inflation -- a consequence of the imperial system we have in this world which is arguably a much bigger problem than simple inflation.)

The reasoning is, when you have sold many more tickets than there are seats in the concert hall, one way or another, there will be a problem.  And inflation (where maybe 4 people squeeze into 3 seats) is the best possible outcome, since the pain is gradual and spread around.

For example, for all the printing of money in Germany during World War I, there was no immediate postwar consumer inflation.  People just preferred to hold onto their money, for whatever reason.  When confidence in that money was lost, inflation happened like a tidal wave.  When a bubble in money bursts, and how, is one of the classic problems of investing -- you never know for sure since the bubble is supported by the most powerful people in society.  Given the incentives for the elites to destabilize their own system, you know it will burst in some way, at some point.

[BobK71]

But I don't understand how the former (asset price inflation) is going to translate into the latter (consumer price inflation). It would be nice if you explained in short the transfer mechanism if there is any. Look, when the Fed poured trillions into the financial markets in late 2000's and early 2010's, it didn't turn around as consumer price inflation. The Fed had managed to keep the inflation rates on a tight rein. So why should today or tomorrow be different?

Also, there are even more powerful arguments you could have used.  The British Empire issued much more paper money than it had gold, over most of the 19th century, under an official gold standard, and there was little inflation in Britain and the West over that period.

So that particular bubble in money (supported by British acquisition of colonies which were 'happy' to hold paper pound sterling as reserves, and other mechanisms) arguably took 100 years to burst.

But that time came too (the precise mechanism being very complex, again, involving world wars and transitioning the imperial seat to America, etc.)  A paper pound note is today worth less than 3% of its 'equivalent' in gold under the British gold standard -- 3% being the amount of gold Britain owned relative to the amount of paper money it had issued, on the eve of World War I.

[Hell-raiser]

But I don't understand how the former (asset price inflation) is going to translate into the latter (consumer price inflation). It would be nice if you explained in short the transfer mechanism if there is any. Look, when the Fed poured trillions into the financial markets in late 2000's and early 2010's, it didn't turn around as consumer price inflation. The Fed had managed to keep the inflation rates on a tight rein. So why should today or tomorrow be different?

There are many possible pathways, and the current financial inflation hasn't yet gone into consumer price inflation, so predictions are hard.  (Further complicating the scene is that developing countries often end up absorbing a lot of the financial inflation -- a consequence of the imperial system we have in this world which is arguably a much bigger problem than simple inflation.)

The reasoning is, when you have sold many more tickets than there are seats in the concert hall, one way or another, there will be a problem.  And inflation (where maybe 4 people squeeze into 3 seats) is the best possible outcome, since the pain is gradual and spread around.

For example, for all the printing of money in Germany during World War I, there was no immediate postwar consumer inflation.  People just preferred to hold onto their money, for whatever reason.  When confidence in that money was lost, inflation happened like a tidal wave.  When a bubble in money bursts, and how, is one of the classic problems of investing -- you never know for sure since the bubble is supported by the most powerful people in society.  Given the incentives for the elites to destabilize their own system, you know it will burst in some way, at some point.

So you are basically saying that even if we have somehow postponed consumer price inflation now, it will inevitably kick in later because the printed trillions will sooner or later trickle into the real economy pushing consumer prices higher. It may be like that in many cases as it happened in the past with Germany after World War I. But even with Germany that in fact remains to be seen. Germany lost war in 1918 when the Versailles peace treaty was signed, while hyperinflation started there only 3 years after, in 1921. And it was an obvious outcome of excessive money printing back then, not due to paper money having been stashed for 4-7 years. 

[OrangeII]

today, people are always looking at bitcoin and gold prices, both of which are excellent investment tools for the future. however, bitcoin prices tend to accrue more quickly, so many people choose to invest in bitcoins rather than gold. but, gold has an advantage, that is physical form, and its value always increases even if it is a little longer.

[Jetpistul]

My opinion is equally good but it's better if we choose both. If there is more money we save gold and bitcoin because gold is also a good price but more with the increase in bitcoin may be a great one. so it's good to take a 50% / 50% investment.

[nesty]

Bitcoin and Gold are both good investments. But value wise i go for Bitcoin because it is more profitable compare to Gold and more people are getting interested to invest in bitcoin.