1/15 Bitcoin vs. gold—betting on the fastest horse

(a review of Paul Tudor Jones' bitcoin forecast from last year)

A thread

2/15 In Paul Tudor Jones’ May 2020 investor note, Jones listed a host of assets that have at one time or another worked well during reflationary periods. Among these were stock indices, commodity indices, inflation-protected bonds, emerging market currency indices aswell as gold.

3/15 Jones placed bitcoin among these assets due its inherent characteristics, which (according to him) ought to make it resilient value-wise in the face of aggressive monetary and fiscal policy.

4/15 What followed was a discussion grading the different assets by that set of properties that suggestibly underpin “good stores of value”. The passage concluded with the following remark:

5/15 ”Bitcoin had an overall score nearly 60% of that of financial assets but has a market cap that is 1/1200th of that. It scores 66% of gold as a store of value, but has a market cap that is 1/60th of gold’s. Something appears wrong here and my guess is it is the price of BTC.”

6/15 The comparison between bitcoin and gold is of special interest, as bitcoin is often touted as “digital gold” or “gold 2.0”.

Now, almost a year since Jones' remarks, and more than a year since the depths of the coronavirus-driven market collapse, we can review the record.

7/15 Quote:

”At the end of the day, the best profit-maximizing strategy is to own the fastest horse. Just own the best performer and not get wed to an intellectual side that might leave you weeping in the performance dust because you thought you were smarter than the market.—

8/15

—If I am forced to forecast, my bet is it will be Bitcoin.”

9/15 In dollar terms, gold appreciated +13.04% within the one-year timeframe. Bitcoin appreciated +1442%. It appears that bitcoin very much was the fastest horse.

10/15 It is perhaps even more interesting if we also account for monetary inflation in this comparison. Nominal appreciation means little in a context where the denominator itself (USD) is shifting...

11/15 ..but we can at least divide the exchange rates of BTCUSD (bitcoin) and XAUUSD (gold) with M2 to establish whether the nominal value appreciation has kept up with USD monetary expansion.

12/15 In this comparison, BTCUSD/M2 performed +819%, outpacing monetary expansion greatly. Gold on the other hand, failed to keep up with the rate of M2 expansion, and even depreciated (XAUUSD/M2: -7.43%).

13/15 Another way to look at it: at one point during this crisis, above-ground gold reached at total market capitalization of ~$10 trillion. It now sits at ~$9 trillion. Meanwhile, bitcoin’s total market capitalization has risen from ~$100 billion to a total of ~$1.1 trillion.

14/15 From a bird eye’s view, it almost appears as if a total of $1 trillion has been repriced from gold straight into bitcoin.

15/15 Perhaps fittingly so, as it has happened during a time when bitcoin’s properties are becoming valued and understood by the financial mainstream as equivalent, or in many regards superior, to gold’s.

Link to the report: https://www.lopp.net/pdf/BVI-Macro-Outlook.pdf