Bitcoin (CRYPTO: BTC) is slipping in recent trading, down 1.5% over the past 24 hours to US$47,220 (AU$64,685).
That brings Bitcoin’s loss over the past 7 days to 4.4%.
In fact, all 7 of the top valued cryptos are in the red over the last 7 days, according to data from CoinMarketCap.
Gold, on the other hand, is up a slender 0.8% over that same time. One ounce of gold is currently worth US$1,815.
Bitcoin to zero and gold to shine?
I bring up gold here for a reason.
The decade-old debate about whether gold, Bitcoin, or other cryptos are the best way for investors to hedge against potential spikes in inflation is heating back up.
Billionaire investor John Paulson, for one, doesn’t waffle in his outlook for both the yellow metal and intangible cryptos.
You may have heard of Paulson. He made a fortune betting against the United States’ housing market in the lead up to the GFC.
In fact, as Bloomberg reports, Paulson netted some US$20 billion for investors, and his own pockets, when US subprime mortgage bonds imploded.
Now Paulson is spruiking gold as a hedge as he sees massive government spending potentially sending inflation rates higher than central banks, and most analysts, are forecasting. He says the 25% increase in the US money supply last year spells significant price rises ahead.
Hence Paulson’s recommendation on gold:
We believe that gold does very well in times of inflation. The last time gold went parabolic was in the 1970s, when we had two years of double-digit inflation.
The reason why gold goes parabolic is that basically there’s a very limited amount of investable gold. It’s in the order of several trillion dollars, while the total amount of financial assets is closer to $200 trillion. So as inflation picks up, people try and get out of fixed income. They try and get out of cash. And the logical place to go is gold. But because the amount of money trying to move out of cash and fixed income dwarfs the amount of investable gold, the supply and demand imbalance causes gold to rise.
As for Bitcoin?
Paulson didn’t pull any punches on his long-term views for Bitcoin and other cryptocurrencies.
“I wouldn’t recommend anyone invest in cryptocurrencies,” Paulson said on an episode of Bloomberg Wealth with David Rubenstein.
I would say that cryptocurrencies are a bubble. I would describe them as a limited supply of nothing. So to the extent there’s more demand than the limited supply, the price would go up. But to the extent the demand falls, then the price would go down. There’s no intrinsic value to any of the cryptocurrencies except that there’s a limited amount.
Cryptocurrencies, regardless of where they’re trading today, will eventually prove to be worthless. Once the exuberance wears off, or liquidity dries up, they will go to zero.
With that kind of forecast, investors may be tempted to short Bitcoin or other cryptocurrencies.
If you’re thinking along those lines, Paulson offered these words of caution when asked why he deosn’t go short, “[E]ven though I could be right over the long term, in the short term, I’d be wiped out. In the case of Bitcoin, it went from $5,000 to $45,000. It’s just too volatile to short.”
How to access gold on the ASX
If you believe Paulson is right and inflation is likely to push the gold price higher, there are a number of exchange traded funds (ETFs) on the ASX that offer investors a means to track the gold price.
One such ETF worth investigating is ETFs Metal Securities Australia Ltd (ASX: GOLD).
As the ticker implies, GOLD provides investors access to physical gold, in that each share is backed by 0.10 troy ounces of gold, held by by JP Morgan Chase Bank in London.
The ETF moves in line with the gold spot price, minus management fees. It’s down 7.6% over the past 12 months, similar to the declining gold price over that time.
Bitcoin, if you’re wondering, is up 305% since this time last year.
Which explains Paulson’s refusal to short the token.
Whether or not he’s right and Bitcoin will go to zero along with the rest of the cryptocurrencies once ” the exuberance wears off” remains to be seen.