The Sovereign and the Satoshi

ABERDEEN, SCOTLAND – It’s going to be a long Lent this year. To make lockdown more interesting, I decided to give up food.

I’ve long been enthralled by the story of Bavarian monks in the 1600s who stopped eating during Lent, and just drank beer instead – concocting an especially rich brew for the occasion.

The brewing activities of those monks – the Paulaner Friars – we know today as the German beverage powerhouse Paulaner. And the special fasting beer (or fastenbier) they brewed for the occasion has become the beer style known as “Doppelbock”.

Hopefully, the truckload of Doppelbock which now looms ominously just a few feet from my laptop will be just as sustaining as it was in the 17th century. All being well, I’ll be surviving on a diet of Doppelbock, water, black tea/coffee and the occasional multivitamin until early April.

Should my health begin to seriously deteriorate, I’ll call a halt to proceedings – but I think I’ll be alright. I suspect my concentration will suffer at the beginning of this process though, so I’m taking a few days off while my body adapts to this “new paradigm”…

But have no fear: Capital & Conflict shall continue in my absence. You’ll be hearing from Nickolai Hubble on Monday, who has some insights on the gold market he’d like to share.

I’ll be focusing on gold as well while I’m off – specifically on gold sovereigns, which I intend to acquire more of with a sliver of my bitcoin profits.

I’ve not suddenly turned bearish on bitcoins. As I’ve said in recent letters, I remain cautiously optimistic for the BTC price, and will not be selling the majority of my stake. And I stick to my call that we’re on the cusp of an alt-season, the cyclical phenomenon where cryptocurrencies other than bitcoin steal the limelight and start exploding in price. I own a few altcoins – very risky plays but with great speculative potential. If you dare head to this wild frontier of the market with a smidgen of your own capital, you should take a look at this first.

But I see gold quite differently – not as a speculation, but as a foundation for building long-term wealth. This is something speculative gains should be funnelled into once you’ve made them. I regretted not acquiring more gold with my crypto profits in the 2017 crypto bull market (I did a bit, but not as much as I’d have liked), and I don’t intend to repeat that mistake.

Looking at a chart of gold sovereign prices (this index is in USD), the outlook doesn’t actually look that great in the short term. The price is in retreat, having hit the same high twice and failing to break through:

Note the missing data entries for this index in 2020 (likely caused by the WuFlu)

… but when it comes to this purchase, I don’t particularly care. I’m not trying to perfectly time the market and flip these sovereigns for a profit in a few months’ time. I intend to hold them for many years, and I have very little doubt that my holdings will preserve my purchasing power over that time.

Bitcoin may have scarcity programmed into it, but that doesn’t mean it will replace scarce assets. The idea that “bitcoin will eat gold’s lunch”, as is oft repeated by some (not all) bitcoiners these days, is incorrect in my view – but it does appear to have convinced some investors.

Charlie Morris made the interesting observation recently that investment flows into gold began falling right as investment flows into bitcoin exchange-traded products (ETPs) began accelerating:

Source: ByteTree

The allure of aurum has captivated man for millennia – that’s not going to change now that the internet has created its own form of money.

Bitcoin and gold aren’t the same thing: one won’t replace the other. But in combination they do remarkably well – gold prospers during economic malaise and inflation, takes the edge off bitcoin’s brutal volatility, and holds steady when bitcoin rallies run out of gas.

Charlie Morris has started calling a blended portfolio of bitcoin and gold the “BOLD” portfolio (certainly a more pleasant joining of words than “GITCOIN”). For me, I’m just referring to it as S&S: Sovereigns and Satoshis. And the more I think about it, the more conviction I have in its value.

We’ll explore this more once I’m back. But now if you’ll excuse me, I have some liquid bread to drink…

Wishing you a good weekend,

Boaz Shoshan
Editor, Capital & Conflict

Category: Investing in Bitcoin

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