Peter Schiff: Gold vs. Bitcoin

[BigJohn]

What Peter means when he says that bitcoins (the currency) has no intrinsic value, he really means that it has no non-monetary use.  In this sense, he is correct.  Bitcoin has no non-monetary use.  However, Bitcoin (the system/netwrok) does have features/characteristics that have usefulness beyond the context of a simple means of exchange, and all of those features require the use of bitcoins (the currency) to utilize.  In this sense, Bitcoin does have an 'intrinsic value' in the economic sense.  While I can't pay my taxes with it, I certainly can do many useful things with it, that no other curerncy in history can do without third party help.

Such as create blockchain enforcable contracts...
https://en.bitcoin.it/wiki/Contracts

And, perhaps eventually, the transfer of asset titles...

https://docs.google.com/document/d/1AnkP_cVZTCMLIzw4DvsW6M8Q2JC0lIzrTLuoWu2z1BE/edit?pli=1
http://www.newscientist.com/article/dn24620-bitcoin-moves-beyond-mere-money.html

And the (terriblely underused) transaction scripting system promises to do much, much more

I, for one, do see value in a completely impartial, automated and near zero cost system that not only replaces most of the functions of brick * mortor banks, but most of the functions of the county clerck as well.

I totally agree with all that. I think Bitcoin as a technology has huge potential. But in my mind that just cements the idea that the current price is a huge bubble even more.

Pretty much anything people say to defend Bitcoin's intrinsic value is stuff that Bitcoin is capable of, and may be doing in the future. Transfer of titles, contracts, even distributed corporations, it all sounds awesome. Even as a payment system it sounds awesome. How you wouldn't want to take a huge bag of gold with you to the airport, but taking some BTC with you is trivial. It all makes sense. But none of it is possible right now. And yet right now the price is continually rising to tremendous levels.

The argument is that Bitcoin currently has no intrinsic value. Not that it won't have it in the future, or that the technology sucks in general. I'm personally at awe of what this tech can do. But just currently, in this moment in time, none of that stuff is happening. It's barely even being used as a way to pay for things. So like I said, that means that the current price is driven by speculation, which cements the idea of a bubble even further.

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[BigJohn]

... So that means the bulk of Bitcoin-wealth right now is speculation. And that definitely spells a bubble.

I think the fifth time I've dropped this insightful post in response to "bubble": http://unqualified-reservations.blogspot.ca/2013/04/bitcoin-is-money-bitcoin-is-bubble.html

Snippet:

The BTM asserts that money and a bubble are the same thing.  Both are anomalously overvalued assets.  Both obtain their anomalous value from the fact that many people have bought the asset, without any intention to use it, but only to exchange it for some other asset at a later date.  The two can be distinguished only in hindsight.  If it popped, it was a bubble.  If not, money - so far.

Interesting post. Lots to think about.

Where it falls a bit short for me though is where does the anomalous overvalue come from?

In the case of gold you could say because of its store of value and other utility uses. Very few people, even nowadays with so many gold bugs, are buying gold in the expectation of making huge returns in the future. And of course that's true for fiat as well. At least I'm not aware of anyone buying USDs because they expect them to be worth significantly more in the future. We use USDs because that's the most common medium of exchange here in the US.

But with Bitcoin I'm just not seeing that. What I am seeing is the vast bulk of the people who use Bitcoin get into it on speculation of huge returns in the future. So the "anomaly" is circumstance and law with fiat, it's utility with metals, and it's speculation with Bitcoin.

[qwerty555]

It depends which definition of intrinsic value he is referring to  but arguably bitcoin falls into many of them

3. Economics: No intrinsic value exists for any good or service except its price (see use value) which is reflection of its demand and supply position and not of any inherent quality.

Read more: http://www.businessdictionary.com/definition/intrinsic-value.html#ixzz2lM6avE1r


and

6. Record keeping: Worth of a document expressed in monetary terms, due to some unique factor such as a signature, age, seal, or circumstances in which it was created.


I like gold as well as bitcoin but for now favor bitcoin as

a) potential upside is x 5000 + of current value and x5 is already a fantastic investment never mind the other 3 zero's

http://www.zerohedge.com/news/2013-11-10/bitcoin-plunges-25-government-scrutiny-first-btc-fair-value-reco-has-stunning-price-

http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2013/11/Bitcoin.pdf

However, let’s use a broad guesstimate.
One Bitcoin should theoretically be worth 700
ounces of gold or p
retty close to $1,000,000
, if we adjust existing supply of both to equal each
other

https://i.imgur.com/GOYWUMo.png

b) gold has a talked about upside to $7,000 or x 5-6 but maybe 5 to 10 yrs away.

https://www.google.com.ph/search?q=gold+%247000&ie=utf-8&oe=utf-8&rls=org.mozilla:en-US:official&client=firefox-a&gws_rd=cr&ei=-wOPUqD6MsOTkQWPnIEo

So safer money in Gold and speculative in Bitcoin seems a sensible approach

[d'aniel]

... So that means the bulk of Bitcoin-wealth right now is speculation. And that definitely spells a bubble.

I think the fifth time I've dropped this insightful post in response to "bubble": http://unqualified-reservations.blogspot.ca/2013/04/bitcoin-is-money-bitcoin-is-bubble.html

Snippet:

The BTM asserts that money and a bubble are the same thing.  Both are anomalously overvalued assets.  Both obtain their anomalous value from the fact that many people have bought the asset, without any intention to use it, but only to exchange it for some other asset at a later date.  The two can be distinguished only in hindsight.  If it popped, it was a bubble.  If not, money - so far.

Interesting post. Lots to think about.

Where it falls a bit short for me though is where does the anomalous overvalue come from?

In the case of gold you could say because of its store of value and other utility uses. Very few people, even nowadays with so many gold bugs, are buying gold in the expectation of making huge returns in the future. And of course that's true for fiat as well. At least I'm not aware of anyone buying USDs because they expect them to be worth significantly more in the future. We use USDs because that's the most common medium of exchange here in the US.

But with Bitcoin I'm just not seeing that. What I am seeing is the vast bulk of the people who use Bitcoin get into it on speculation of huge returns in the future. So the "anomaly" is circumstance and law with fiat, it's utility with metals, and it's speculation with Bitcoin.

Gold is a store of value which carries no counterparty risk.  Its primary use today is to hedge against the tail risk of total systemic collapse of the financial system, since ones ownership of it doesn't depend on the solvency of anybody else.  Very little of gold's demand comes from its non-monetary uses, so at $8T this is quite the "anomaly" indeed (though it's source its perfectly tractable).

My interpretation is that Bitcoin serves the exact same purpose as gold, only better, and it competes with gold for this role.  Therefore it introduces a risk to gold holders that they will need to hedge against by diversifying this holding to some degree into bitcoins.

[hathmill]

http://www.youtube.com/watch?v=0L7SOPDOvvI


Basically his point is that gold has intrinsic value, while Bitcoin doesn't, and that most of the BTC is being hoarded and not actually used in commerce. This leads him to believe the price is highly inflated.

Wrong. Bitcoin is the only programmable money in the world and everything is moving into the virtual world. Peter S. sells gold soo he is talking his own book.

[corebob]

During wartime, gold, silver and art will be confiscated and stolen. Not so with bitcoins

[Herp]

Peter Schiff is self serving, nothing more.

His Euro Pacific capital has exorbitant rip off fees. Most of his investment placements are in gold and silver. He's also selling gold and silver to his client base along with lots of gold mining and silver mining stocks.

His fund is also focused on investments outside US only. Notice the "euro" in Euro Pacific. As if Europe is better place to invest money than US, with European economies crumbling left and right.

So bottom line here is: people should be aware he's only advertising his goods. At this point Bitcoin is gold 2.0 and he has to badmouth the competition a bit so that his followers keep buying what he's selling instead of Bitcoin.

[Herp]

Bitcoin has intrinsic value because it offers the best payment system world has ever seen (unlike gold or fiat) bundled with the currency itself. It's also becoming increasingly more expensive to mine. The price to mine 1 unit grows exponentially way faster than price to mine gold.

Folks like Schiff will be late to the party but better late than never.

[Dr Bloggood]

A lot of great posts in this thread - I'm tempted to quote 10 posts here.

I love Schiff, he is extremely clever! However:

The other day he claimed that moving the decimal place for bitcoin is the same as "printing" money. 

Exactly!!!

I also saw that interview, and at first got a little insecure about BC, because I respect Schiff so much. However, when I heared that statement, I knew he had no clue what BC was and therefore stopped being concerned. Schiff + BC: For future references, please just disregard!

It's a good feeling when it all makes sense again...

OP, your bubble-statement is very true as well! But IMO that might change in the future, as more and more services offer BC, more and more people realize that FIAT is becoming worthless and are looking for ways to preserve their savings (and BC seems to be perfect for that!), and also BC becomes less volatile.

Schiff isn't self-serving though, he got a ton of integrity, that's for sure!

He misses that the intrinsic value for BC is trust though. Trust, anonimity, payment system, etc, and it can't be (to my knowledge) as heavily supressed and manipulated as the precious metals are.

[Dr Bloggood]

What Peter means when he says that bitcoins (the currency) has no intrinsic value, he really means that it has no non-monetary use.  In this sense, he is correct.  Bitcoin has no non-monetary use.  However, Bitcoin (the system/netwrok) does have features/characteristics that have usefulness beyond the context of a simple means of exchange, and all of those features require the use of bitcoins (the currency) to utilize.  In this sense, Bitcoin does have an 'intrinsic value' in the economic sense.  While I can't pay my taxes with it, I certainly can do many useful things with it, that no other curerncy in history can do without third party help.

Such as create blockchain enforcable contracts...
https://en.bitcoin.it/wiki/Contracts

And, perhaps eventually, the transfer of asset titles...

https://docs.google.com/document/d/1AnkP_cVZTCMLIzw4DvsW6M8Q2JC0lIzrTLuoWu2z1BE/edit?pli=1
http://www.newscientist.com/article/dn24620-bitcoin-moves-beyond-mere-money.html

And the (terriblely underused) transaction scripting system promises to do much, much more

I, for one, do see value in a completely impartial, automated and near zero cost system that not only replaces most of the functions of brick * mortor banks, but most of the functions of the county clerck as well.

I totally agree with all that. I think Bitcoin as a technology has huge potential. But in my mind that just cements the idea that the current price is a huge bubble even more.

Pretty much anything people say to defend Bitcoin's intrinsic value is stuff that Bitcoin is capable of, and may be doing in the future. Transfer of titles, contracts, even distributed corporations, it all sounds awesome. Even as a payment system it sounds awesome. How you wouldn't want to take a huge bag of gold with you to the airport, but taking some BTC with you is trivial. It all makes sense. But none of it is possible right now. And yet right now the price is continually rising to tremendous levels.

The argument is that Bitcoin currently has no intrinsic value. Not that it won't have it in the future, or that the technology sucks in general. I'm personally at awe of what this tech can do. But just currently, in this moment in time, none of that stuff is happening. It's barely even being used as a way to pay for things. So like I said, that means that the current price is driven by speculation, which cements the idea of a bubble even further.

It currently has the intrinsic values talked about already: Confidence, limited available amount, privacy, a bundled system, etc. - it has all of those values today.

Furthermore, what is a bubble?

I would say, a bubble exists when the price of an asset is way higher than its "real" value.

We know BCs price, but what is it's "real value"? Hard to say, as you can't really put a price tag to the values I mentioned above. But considering the amount of BCs existing, the amount of people in BCs and said values, it might or might not be in a bubble right now.

However, the most important thing to consider really IS when future value catches up. You might never see current price levels again anyways, no matter if it's theoretically a bubble or not - so you might as well buy now. BC is playing a special role here, because it is really breaking new ground. If you want to put it in stock market terms, it's a value and a growth "stock" at the same time. Buy it for it's value now, which may or may not be in a bubble. But above all, buy it for growth, for immense FUTURE value (if you believe in it)!

Having said that, I totally share your concerns about a bubble! This, and governments future reactions are, for me, the biggest arguments against BC. However, I have come to the conclusion that I want to buy a bit.

[btbrae]

He is pretty much wrong in every aspect.

First time I watched a Schiff video and didn't make it to the end.

He misses the point entirely.

[SkRRJyTC]

I hold gold and bitcoin.

i buy things with btc all the time.

i have never ever ever ever bought anything with gold.

Ding Ding Dingaling!

[Snail2]

Gold will be fine during and after the SHTF what sooner or later will happen. Until then bitcoin seems to be a better option. So I'm collecting BTC and some cheap 9-18K jewelry as SHTF preparation .

[Phinnaeus Gage]

I hold gold and bitcoin.

i buy things with btc all the time.

i have never ever ever ever bought anything with gold.

In the late 70's, I purchased gas with silver dimes and quarters.

[Dr Bloggood]

Gold will be fine during and after the SHTF what sooner or later will happen. Until then bitcoin seems to be a better option. So I'm collecting BTC and some cheap 9-18K jewelry as SHTF preparation .

Those are exactly my thoughts! I figured Bitcoin is NOW, while gold and silver will be SOON, but maybe 1-3 years in the future.

Both should hopefully skyrocket at some point.

[bitmansachs]

Peter Schiff is awesome...but he should man up sooner rather than later and admit he is wrong or at least might be wrong...

[Bees Brothers]

I hold gold and bitcoin.

i buy things with btc all the time.

i have never ever ever ever bought anything with gold.

I'm exactly the same way, except I mostly hold silver.  I've never directly bought anything with silver, but I've bought everything from mobile phone service to honey candies to digital artifacts (TF2) to handmade things on Etsy with bitcoin.

I'm a long time silver bug, but I'd much rather pay someone with silver. At this point, I'm not spending a single bitcoin until they're accepted everywhere.

I have transacted with silver many times before.  Earlier this year I needed to buy some equipment...didn't have the cash and couldn't convince the person to accept bitcoin, so I bought the equipment with 120 ounces of silver.

Looking back today, I sure am glad he didn't take bitcoin! 

[BigJohn]

Furthermore, what is a bubble?

I would say, a bubble exists when the price of an asset is way higher than its "real" value.

We know BCs price, but what is it's "real value"? Hard to say, as you can't really put a price tag to the values I mentioned above. But considering the amount of BCs existing, the amount of people in BCs and said values, it might or might not be in a bubble right now.

I see this point a lot, and I feel like you guys are slightly missing the point here. The point isn't to say that Bitcoin itself is a bubble. The word bubble wouldn't make sense in that context. But that its current value as measured in fiat is highly inflated. I'm not saying it's some experiment that's over-valued and will implode and disappear in the future. Quite the contrary. I'm saying, and I think Peter Schiff is trying to say too, that Bitcoin as a tech has a lot of potential for the future. But it's just that, the future, not the present. Yet in the present the price is incredibly high and climbing. We'd be wise to ask why.

Asking what is a bubble seems redundant. The issue being raised is quite simple. What makes up Bitcoin's current price?

People have all sorts of answers when it comes to fiat and gold. Utility, the law, reserve status of the currency, governments buying gold, etc. But when it comes to Bitcoin it's really quite simple: Speculation.

I don't believe anyone could disagree with that. And if so, I'd love to hear it. Speculation seems to be the number1 determining factor for Bitcoin's price. We haven't seen any widespread adoption that would suggest the price should be around $1,000 yet. And we can't chalk it up to inflation or people fleeing from fiat, because we're not seeing a similar move in other assets. So again we're left with speculation.

And unfortunately, Speculation = Bubble.

[d'aniel]

Furthermore, what is a bubble?

I would say, a bubble exists when the price of an asset is way higher than its "real" value.

We know BCs price, but what is it's "real value"? Hard to say, as you can't really put a price tag to the values I mentioned above. But considering the amount of BCs existing, the amount of people in BCs and said values, it might or might not be in a bubble right now.

I see this point a lot, and I feel like you guys are slightly missing the point here. The point isn't to say that Bitcoin itself is a bubble. The word bubble wouldn't make sense in that context. But that its current value as measured in fiat is highly inflated. I'm not saying it's some experiment that's over-valued and will implode and disappear in the future. Quite the contrary. I'm saying, and I think Peter Schiff is trying to say too, that Bitcoin as a tech has a lot of potential for the future. But it's just that, the future, not the present. Yet in the present the price is incredibly high and climbing. We'd be wise to ask why.

Asking what is a bubble seems redundant. The issue being raised is quite simple. What makes up Bitcoin's current price?

People have all sorts of answers when it comes to fiat and gold. Utility, the law, reserve status of the currency, governments buying gold, etc. But when it comes to Bitcoin it's really quite simple: Speculation.

I don't believe anyone could disagree with that. And if so, I'd love to hear it. Speculation seems to be the number1 determining factor for Bitcoin's price. We haven't seen any widespread adoption that would suggest the price should be around $1,000 yet. And we can't chalk it up to inflation or people fleeing from fiat, because we're not seeing a similar move in other assets. So again we're left with speculation.

And unfortunately, Speculation = Bubble.

Speculation generally doesn't happen in a vacuum.  There has to be some story driving it.  As I said above, the gold 2.0 folks are speculating that some fraction of the value stored in gold will have to diversify into bitcoins.  Will they be correct?  I like to think so, but nobody knows for sure.  You seem to be "speculating" in the other direction, but all you've got is wild guesses as well (I don't actually think the other side is operating on wild guesses).  If it ends up competing to some not insignificant degree with gold, then Bitcoin is money.  If not, it's a bubble.  Pretty simple.

Use as a currency rather than just money, i.e. a store of value, is ancillary to the valuation.  E.g. gold is pretty much never used as a currency, yet it retains extraordinary value.  I like to use the example where you've got 1000 people using it for daily purchases, each storing $100 in bitcoins at any given time, and a single person storing $100,000 of savings in bitcoins.  The latter contributes the same amount to the total valuation as the former, yet he's outnumbered by them by three orders of magnitude.  Now consider millionaires and billionaires, and you'll quickly see why use as a currency doesn't really matter in terms of valuation (though it matters a ton when it comes to building political capital, and staving off government attacks).

Edit: To give you some numbers: all the gold in the world is worth ~$8T.  Bitcoin is currently valued at ~$9B.  So the market seems to be saying Bitcoin should supplant 9/8000 ~ 0.1% of gold's role in the economy.  The speculators just disagree with this number, and think it should be higher.

[Herp]

Schiff keeps talking about gold's intrinsic value. Gold has no intrinsic value except the gold demand for jewelry and some very light industrial demand. Should gold trade based on intrinsic value alone, it shouldn't be worth more than 100$/ounce perhaps, even less. Most of its value comes from the hoarding done by investors, various countries and banks.

Most of the jewelry demand for gold comes from India and even there it's falling out of fashion. It's an ugly metal to use as jewelry and people are starting to realize it. More platinum, silver and other materials are used for jewelry more and more.