DRIGGS, IDAHO – We’re back with a new Friday mailbag edition, and the main question on readers’ minds this week is… Am I wrong about bitcoin?
Below, I’ll show you why I stand by my comments that bitcoin is just an elegant score-keeping system with no intrinsic value.
We’ll also talk about oil tanker stocks, which I recommended earlier this year… and what rising inflation means for bond investors…
Reader comment: I do have some conflicting questions about gold and bitcoin from statements you’ve made. I am a Legacy Research member and follow most of the articles and some of the investment advice.
On the subject of gold and bitcoin (which I own both): You yourself bought bitcoin and made a million dollars in bitcoin around 2013, if memory serves correct. You also took investment money from your mother’s Bridge club. Additionally, you were telling everyone you could about bitcoin and how great it was. Only recently have you started to take a stance against bitcoin. Did something change between then and now?
You mention that bitcoin consumes 1% of the world power, which you’ve referred to as the equivalent of the power that Switzerland consumes in a day. I would think the power consumed to extract gold is not free. Not that I know those numbers, but I’m sure it’s a large price as well.
Last thing: Palm Beach Research Group, which you founded and hired Teeka as its crypto expert, is telling subscribers exactly the opposite of what you’re saying.
You both speak with, it seems, absolute surety. Maybe these are tough questions or maybe they are not (depending on how you look at it). Could you provide some clarification for your subscribers?
I love watching, reading, and continuing to learn. Best of travels.
When I found bitcoin, it was less than $10 a coin and no one had heard of it yet. I knew it would become very popular. Now, it’s very popular and trading at more than $16,000 a coin and rising every day.
I concede that the bitcoin price could go much higher. But that’s the thing about bitcoin. There is no way to value it. I can make equally good arguments why it’s worth nothing or why it’s worth a million dollars a coin and you can’t refute either.
It’s a gambling game… the perfect example of a greater fool speculation. Whatever happens, I’ll sit this one out on the sidelines.
Reader comment: Tom, thanks for your postcards. I love them! About bitcoin, I don’t really get your point. Bitcoin and dollars are both worthless when it comes to bartering, especially since 1971, when the dollar was decoupled from gold. The only thing left is trust.
Trust is what keeps the value of the dollar. Trust is what’s keeping the value of BTC too, but in contrast to USD, supply is limited. If the trust should shift out of the dollar and into BTC, I would say that BTC would gain a gigantic value. Bartering is simply too complicated. When you hold physical gold, don’t you exchange it to some fiat to get around?
Holding bitcoin doesn’t involve trust. There’s nothing behind it to trust in. Holding bitcoin requires faith… that it’ll still be around in a few years and worth something.
Reader comment: I love all of your research and written work. I’ve got to be one of your most loyal and ardent followers (one of many). I was perhaps the most impressed with your analysis and recommendations through the Great Recession, as published in The 12% Letter.
You demonstrated incredible resolve and guts in the depth of that bear market. Your work on “income for life” was also transformative for my family in a good way.
With all of this said, I have one question: At what price level will you reverse your recently discussed opinion on bitcoin? Will it be at all time new highs? $50k? $100k? When? In other words, when would you say you got it wrong? Thank you.
Thank you for the very encouraging message. I’d say I was wrong if bitcoin made an all-time high. That would prove that bitcoin is still in a primary bull market. As things are now, bitcoin is in a primary bear market until it tells me otherwise.
By the way, I don’t have any financial position in bitcoin, so I’m not losing any money with bitcoin’s rise. For me, it’s a purely academic discussion about what money is.
Reader comment: First of all, I enjoy reading about the escapades you and your family are experiencing. I’m not sure about hunkering down in the cold versus warm weather but you and your family are young. So enjoy!
The question I have is: Could you enlighten us with who/what/how is the price of gold determined? My local dealer says that coins (bullion) are difficult to get, but I am sure physical bullion does determine the price and reacts to it. Is it Comex futures that’s the determinant?
Also, I read sources that say the price can be manipulated (by banks, the Fed, etc.). Is that true and should that be a concern to gold buyers? Thank you and good luck!
The price of things is determined by supply and demand. That’s true whether we’re talking about paper gold, gold coins, or any other form of gold.
Gold coins usually trade for a premium over the international spot price of gold. This premium fluctuates based on supply and demand for gold coins… and can vary wildly from year to year (and coin to coin).
Yes, the big banks manipulate the gold price in the short-term and gold can be quite volatile. But in the long run, their actions don’t make any difference to gold’s price.
Reader comment: Love the postcards and pics of Yellowstone. Went there last summer for a few days and loved it.
What is going on with the tanker stocks? They have taken a turn for the worse. I keep buying Frontline, hopefully for the dividend. I’m worried that if Biden gets elected – and they try to phase out oil – that the tanker stocks will go down even further. Is there a more hated sector than them now? 31% dividend yield from a profitable stock? How is this possible?
Can’t wait to see the wipeout pictures from your first skiing lessons!
There is nothing wrong with tankers. They’ve made more money in the last nine months than they’ve made in years. Two themes are hurting their stocks: negative sentiment towards oil and negative sentiment towards value investing.
Reader comment: I read your letter about the amount of money being invested at present into bond and cash funds, and you said they’re investing in the wrong asset at the wrong time, as cash and bonds don’t protect against inflation.
I have a portion of my pension fund invested in an “Inflation-Linked Managed Bond Fund,” which is made up of 50% German and 50% French government bonds that pay a premium based on the current CPI Inflation rate. Would you consider this type of bond fund an inflation hedge?
Consumer Price Index (CPI) statistics under-report inflation, so you might have a little slippage in real terms. But otherwise, you’re in good shape…
And that’s all for this week! As always, please keep writing in at [email protected].
I read every note you send us, and I’ll do my best to answer your questions in a future mailbag edition.
– Tom Dyson