With prices for both gold and bitcoin rising against the dollar… questions about these alternative currencies continue to dominate our inbox.
In particular, readers are still trying to figure out the answer to our question from last week…
Which is the better long-term bet – gold or bitcoin?
As you’ll see, there’s a hot debate between fans of bitcoin and fans of gold. But at least one reader believes they’re ultimately on the same side of a different competition…
First, a question about gold-backed cryptocurrencies…
Standing by with an answer is Nick Giambruno, who heads up our Casey Report advisory…
Reader question: Please comment on the possible expansion of digital gold coins or tokens that combine the best of bitcoin and gold in one money/currency that can simultaneously serve as an easy medium of exchange for transactions as well as a sound store of value.
– Fal D.
Nick’s answer: Theoretically, a gold-backed crypto would be an excellent idea. But in reality, it’s much more difficult.
Gold-backed cryptocurrencies could never be fully decentralized and autonomous like bitcoin. After all, someone needs to run the business and store the gold somewhere. And those represent significant counterparty risks and vulnerabilities to government action.
If such a project is made that is as decentralized as possible, it would be interesting. But as of today, there’s nothing even close that would justify diverting your capital away from simply owning gold and bitcoin separately.
I recommend sticking to owning physical gold in your possession and owning bitcoin where you control your private keys. So in a digital wallet, not on an exchange.
Next up… a question about the different ways to own physical gold without having the hassle of storing it at home… or the cost of storing it in a safe deposit box in a bank.
Reader question: I have a precious metals question for the Legacy Group…
Would your gurus recommend replacing the iShares Gold Bullion ETF (CGL) with the Sprott Physical Gold Trust (PHYS)?
– Edward B.
Chris’ answer: Thanks for writing in, Edward. I’m glad to see you’re weighing your options carefully.
We don’t provide personalized investment advice. So I’m not able to say which is better for you. But I put our head of research, Michael Gross, on the case. I asked him to list the similarities and differences between CGL and PHYS. Here’s what he came back with…
Both investments are backed by physical gold. Both rise and fall with the dollar price of gold. And you can buy and sell both easily through your regular online broker.
One difference is where these funds vault their gold. PHYS stores its gold at the Royal Canadian Mint. That’s one of the most established mints in the world, and the Canadian government owns it.
That means there’s no levered financial institution between the unitholders and PHYS’ bullion. And there’s no risk of financial loss in the event of a bankruptcy.
By contrast, CGL stores its gold at Scotiabank. It’s Canada’s third-largest commercial bank.
Now, in most circumstances, this isn’t a big deal. But since you own gold as “disaster insurance,” we should consider what could happen to it in a disaster. And a government mint is less vulnerable to a crisis than a commercial bank.
Second, there’s a tax advantage to owning PHYS if you’re a U.S. investor.
Gold and silver ETFs are two of the few investments that are subject to a maximum 28% long-term capital gains tax rate. It’s the rate you’re taxed on gains from assets you hold for more than one year.
PHYS does not fall under the same classifications as the ETFs. Because it’s set up as a trust, gains you realize on the sale of PHYS units are taxed at the lower long-term capital gains rate of 15% (20% for higher-income taxpayers).
Now, back to your thoughts on gold versus bitcoin…
Here at the Cut, we recommend you own both as part of a sensible asset allocation plan.
But we got some great feedback from readers stating the case for favoring our favorite precious metal…
I am too old to believe that two electrons chasing each other in a circle at the speed of light is money! I will stick with 5,000 years of historical perspective of what true money is – gold and silver. Just my take!
– James F.
I think gold is the right choice. Why? The internet is vulnerable. I believe that bitcoin can be “lost” if the grid goes down. This may be due to riots, economic breakdown, hacking, or an electromagnetic atomic explosion above the stratosphere.
I’d rather personally and physically hold a tangible asset that has been recognized as money for thousands of years.
– Mark D.
Others prefer bitcoin…
Bitcoin will prevail ultimately as the preferred form of “honest money” amongst computer-savvy millennials and digital nomads.
Gold will also win a portion of the store-of-value monetary market. Despite its many inconveniences and costs, the average Joe understands that a lustrous lump of gold – satisfyingly heavy in your hand – is the ultimate disaster insurance in a disaster-prone world.
– James P.
And at least one reader believes it’s a false choice…
I don’t see the two competing. I see it as banks vs. bitcoin and gold. We can use both gold and bitcoin and go between the two. That way we can stay out of banks and devalued currency as much as possible.
Maybe it’s generational… Most young people will be familiar with bitcoin and other crypto. Not so much with gold. It may be easier and more affordable for younger generations to buy satoshis [the smallest unit of the bitcoin currency] or Monero [a privacy-focused cryptocurrency] instead of ounces of gold.
As solid-money currency of use, maybe silver will win third place in the race. Bitcoin is tied to electricity, not air. It takes an enormous amount of electricity to solve the mathematical problems to mine bitcoins. And I read that gold is formed in outer space, possibly by way of asteroids or from supernova stars.
– Lisa L.
Finally, some feedback for our globetrotting gold bug, Tom Dyson.
He’s started a new journey with his ex-wife, Kate, and their three kids.
As regular readers know, Tom spent most of the past year and a half traveling through 29 countries… homeschooling his kids along the way.
Now, he’s set off with them on a trip across America. He’s sending back his impressions in our Postcards From the Fringe e-letter. (Catch up on the latest here.)
And judging by the feedback he’s been getting, it’s already a hit.
One reader has even invited Tom and his family to stay with them along the way…
I surely enjoy traveling vicariously with you and your beautiful family. We have taken your counsel and converted savings into gold as well as converted an annuity IRA to a gold IRA. Thanks for your counsel. If you all are ever here in Brewster, WA (North Central, fruit orchard country), we have rooms for your family to stay with us.
– Steve Y.
To keep up with all of Tom’s adventures, sign up to receive his Postcards every weekday – for free – here.
He’s already made clear that he prefers gold over bitcoin.
Where do you stand?
Do you worry bitcoin is vulnerable to an internet outage, as Mark suggests? Or will younger investors turn away from gold and toward bitcoin, making it the winner in the end?
Write us, as always, at [email protected].
June 5, 2020
County Wicklow, Ireland
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