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Even years ago before the previous bull run, the most compelling narrative was that bitcoin would first displace gold as a store of value, and then maybe become

Even years ago before the previous bull run, the most compelling narrative was that bitcoin would first displace gold as a store of value, and then maybe become a global currency. Some people did still cling to the 'digital cash for everyone' narrative, but it's pretty clear that doesn't scale. It's not clear if bitcoin will scale for global payments with second layers, but it seems like the most compelling approach. Now, there is a competing narrative that bitcoin doesn't even need to take over as a currency. Rock solid store of value that is impossible to debase is more than enough to still be worth at least an order of magnitude more. It's a technology to protect savers from having their wealth stolen through currency inflation. Wealthy people already protect themselves with a diversified basket of assets and treat currency like a hot potato. But the poor and middle class often don't have the knowledge, time, or access to protect their wealth. The trend of widening wealth inequality in the US seems to have taken off right around the time we abandoned the gold standard in the 70s. It used to be that everyone could just save their currency and that was a really good store of value. Now savings accounts yield ~0.5% and you have to put your money in more risky assets just to preserve your value. It could be that we end up with a world with both bitcoin as a reserve asset, where you sweep all your excess cash that you don't want to invest, and government fiat currencies, which they can continue to use for stimulus and to print their way out of debt, but without debasing savers to do it as they are now.

bko 6y ago
I read that gold actually outperformed the stock market since the end of the gold standard in the US (1971). I didn't really believe it , but it sort of did, depending on when you bought gold [0]. Not that gold is a good investment, but it does say something that its increased at ~7% a year since introduction of a completely fiat currency. I'm not smart enough to have a story to explain what that all means, but let's just say its ... weird [0] https://mleverything.substack.com/p/performance-of-gold-since-1971 https://mleverything.substack.com/p/performance-of-gold-sinc...
- webinvest 6y ago
  From Jan 1st 1971 to Dec 31st 2020, the US stock market grew by 10.91%/year CAGR if you include dividends which you should. 7.70%/year CAGR if you don’t include dividends. In that time frame, $1 has grown to $177.33. I did the math to find out what the melt value of a $10 1913 gold coin would be today in 2021. Over that more than 100 year time frame, the CAGR of gold is 5%/year. Since 10.91% is far higher than 5% or 7%, I’m inclined to believe that investing in productive companies is far better than investing in a hunk of yellow metal that just sits there.
  - bko 6y ago
    I don't disagree. I addressed this in my post. I don't claim to have a definitive claim that it has outperformed nor do I believe it has. But its curious that it's even up for debate. A fixed supply of something, basically a unit of account. If you denominate prices of "productive assets" in terms of gold, the return is considerably lower when compared to that of fiat. Gold appreciation was ~0% from 1930-1970. Post fiat-currency it grew at 5-7%. That has to mean something...
    - ptr 6y ago
      That the appreciation was 0% makes a lot of sense since the dollar pas pegged to the gold. Maybe it just means that having a currency that increases in value by 7% per year was untenable since it doesn’t incentivize people to invest in more productive ventures. It’s deflationary.
    - ac29 6y ago
      > Gold appreciation was ~0% from 1930-1970. Post fiat-currency it grew at 5-7%. That has to mean something... Gold was nationalized by the US Government in the 1930s and it wasnt legal for US citizens to own or trade again until the 1970s. https://en.wikipedia.org/wiki/Gold_Reserve_Act https://en.wikipedia.org/wiki/Gold_Reserve_Act
- anonporridge 6y ago
  This is really only true if you were lucky enough to buy gold in early 1971. Even a couple years later, market indexes would have been a significantly better bet. [0] The more interesting observation in my opinion, is that priced in gold, market index growth isn't nearly as impressive as dollar denominated numbers would lead you to believe. Priced in gold (excluding dividends) the S&P 500 still hasn't recovered from the dotcom bubble, it's just barely made it back to pre global financial crisis levels, and even that is on par with the 60s. [1] The fiat standard distorts our view of the world and tricks us into seeing growth that isn't real. It's like if the CGPM [2] cut off a sliver from the meter stick every year (before pegging to universal constants) which makes it seem like you're growing in height your entire life, even though in reality you stop growing in your 20s and even start shrinking in old age. [0] https://www.longtermtrends.net/stocks-vs-gold-comparison/ https://www.longtermtrends.net/stocks-vs-gold-comparison/ [1] https://www.macrotrends.net/1437/sp500-to-gold-ratio-chart https://www.macrotrends.net/1437/sp500-to-gold-ratio-chart [2] https://en.wikipedia.org/wiki/General_Conference_on_Weights_and_Measures https://en.wikipedia.org/wiki/General_Conference_on_Weights_...
  - reasonabl_human 6y ago
    The priced in gold insight is frightening to me as someone who holds currency... time to move into appreciating assets
    - anonporridge 6y ago
      Yeah. Cash is trash. Only keep enough cash to handle emergencies, e.g. 3-12 months of expenses to handle job loss. You don't want 100% of your wealth in potentially volatile assets, because job loss will often correlate with market corrections, forcing you to sell your assets at the worst possible time, when you would ideally be buying. However, one trick you can use is to borrow against your assets. Not only do you not need to sell at a bad time, but you don't get dinged by capital gains tax. There are pitfalls here that can make it dangerous, but here's an example of executing it, https://www.mrmoneymustache.com/2021/01/29/margin-loan-ibkr-review/ https://www.mrmoneymustache.com/2021/01/29/margin-loan-ibkr-...

bko 6y ago

I read that gold actually outperformed the stock market since the end of the gold standard in the US (1971). I didn't really believe it , but it sort of did, depending on when you bought gold [0]. Not that gold is a good investment, but it does say something that its increased at ~7% a year since introduction of a completely fiat currency. I'm not smart enough to have a story to explain what that all means, but let's just say its ... weird [0] https://mleverything.substack.com/p/performance-of-gold-since-1971 https://mleverything.substack.com/p/performance-of-gold-sinc...

webinvest 6y ago
From Jan 1st 1971 to Dec 31st 2020, the US stock market grew by 10.91%/year CAGR if you include dividends which you should. 7.70%/year CAGR if you don’t include dividends. In that time frame, $1 has grown to $177.33. I did the math to find out what the melt value of a $10 1913 gold coin would be today in 2021. Over that more than 100 year time frame, the CAGR of gold is 5%/year. Since 10.91% is far higher than 5% or 7%, I’m inclined to believe that investing in productive companies is far better than investing in a hunk of yellow metal that just sits there.
- bko 6y ago
  I don't disagree. I addressed this in my post. I don't claim to have a definitive claim that it has outperformed nor do I believe it has. But its curious that it's even up for debate. A fixed supply of something, basically a unit of account. If you denominate prices of "productive assets" in terms of gold, the return is considerably lower when compared to that of fiat. Gold appreciation was ~0% from 1930-1970. Post fiat-currency it grew at 5-7%. That has to mean something...
  - ptr 6y ago
    That the appreciation was 0% makes a lot of sense since the dollar pas pegged to the gold. Maybe it just means that having a currency that increases in value by 7% per year was untenable since it doesn’t incentivize people to invest in more productive ventures. It’s deflationary.
  - ac29 6y ago
    > Gold appreciation was ~0% from 1930-1970. Post fiat-currency it grew at 5-7%. That has to mean something... Gold was nationalized by the US Government in the 1930s and it wasnt legal for US citizens to own or trade again until the 1970s. https://en.wikipedia.org/wiki/Gold_Reserve_Act https://en.wikipedia.org/wiki/Gold_Reserve_Act
anonporridge 6y ago
This is really only true if you were lucky enough to buy gold in early 1971. Even a couple years later, market indexes would have been a significantly better bet. [0] The more interesting observation in my opinion, is that priced in gold, market index growth isn't nearly as impressive as dollar denominated numbers would lead you to believe. Priced in gold (excluding dividends) the S&P 500 still hasn't recovered from the dotcom bubble, it's just barely made it back to pre global financial crisis levels, and even that is on par with the 60s. [1] The fiat standard distorts our view of the world and tricks us into seeing growth that isn't real. It's like if the CGPM [2] cut off a sliver from the meter stick every year (before pegging to universal constants) which makes it seem like you're growing in height your entire life, even though in reality you stop growing in your 20s and even start shrinking in old age. [0] https://www.longtermtrends.net/stocks-vs-gold-comparison/ https://www.longtermtrends.net/stocks-vs-gold-comparison/ [1] https://www.macrotrends.net/1437/sp500-to-gold-ratio-chart https://www.macrotrends.net/1437/sp500-to-gold-ratio-chart [2] https://en.wikipedia.org/wiki/General_Conference_on_Weights_and_Measures https://en.wikipedia.org/wiki/General_Conference_on_Weights_...
- reasonabl_human 6y ago
  The priced in gold insight is frightening to me as someone who holds currency... time to move into appreciating assets
  - anonporridge 6y ago
    Yeah. Cash is trash. Only keep enough cash to handle emergencies, e.g. 3-12 months of expenses to handle job loss. You don't want 100% of your wealth in potentially volatile assets, because job loss will often correlate with market corrections, forcing you to sell your assets at the worst possible time, when you would ideally be buying. However, one trick you can use is to borrow against your assets. Not only do you not need to sell at a bad time, but you don't get dinged by capital gains tax. There are pitfalls here that can make it dangerous, but here's an example of executing it, https://www.mrmoneymustache.com/2021/01/29/margin-loan-ibkr-review/ https://www.mrmoneymustache.com/2021/01/29/margin-loan-ibkr-...