Are You in the Gold or Bitcoin Tribe?

Friday 3 May 2019
London, UK
Sam Volkering

  • To boo is to be part of a tribe
  • Drop gold?
  • Smart investing isn’t tribal

Dear reader,

To boo or not to boo, that is the question.

If you’re at all into footy (which to a Melbourne-born person means AFL) then you’ll have dished out a ‘boo’ or two in your time.

I have. In fact there’s something quite cathartic about booing an opposition player when they get their hands on the ‘pill’.

I distinctly recall several boos emanating from the North Melbourne members section at Waverley Park during many rigorous games against Hawthorn in the 90s. These were particularly loud when Jason Dunstall was lining up for (another) goal.

Vice versa, whenever Wayne Carey got another mark, goal, or went near the thing he too was opened up to a barrage of boos.

The point of booing was to display your distaste for the opposition player. And when you think about it, it was really the best of the best players that got the most boos. Actually the more I think about it to get a whole opposition booing at you is a mark of respect — albeit grudging.

They boo because the player is good, perhaps even great. No one ever booed a 15 game fringe player getting four or five touches a game. But the greats; Carey, Dunstall, Ablett, Lockett, Williams, Voss, Brown, Judd, etc. all got plenty of boos through their playing time.

This apparently is now an issue in our snowflake world because Scott Pendlebury and Gary Ablett Jnr were ‘excessively booed’ in the last round of footy.

Oh, c’mon. Is this really what the world has come to?

There’s no place for hate, racism or bigotry. But to boo an opposition player is not all that different from cheering your own. To boo is a way of the fan, just like it is to wear clothes in your team colours, make signs and banners, to paint ones face — to commit to the tribe that is your footy club.

Booing is almost like a war cry for your footy tribe. It’s a way of saying to the others, hey, this is my tribe and we don’t like your tribe.

And at a game of footy there’s nothing wrong with a bit of tribalism. But it’s when things get out of hand that we really start to find issue, a degradation of the game and the enjoyment of it all.

Tribalism however isn’t limited to the AFL, nor other football codes, or even sports. While we regularly find tribal behaviours in sport, what a lot of people forget is that this tribalism often finds its way into the financial world as well.

And just like tribalism in footy, there’s a place for it — but when it gets out of hand it can do far more damage that you might think.

The Markets

Overnight the Dow Jones Industrial Average closed down 122.35 points, or 0.46%.

The S&P 500 lost 6.21 points, or 0.21%.

In Europe, the Euro Stoxx 50 index finished down 25.69 points, or 0.73%.

Meanwhile, the FTSE 100 fell 0.46%, and Germany’s DAX gained 1.34 points, or 0.011%.

In Asian markets, Japan’s Nikkei 225 is down 48.85 points, or 0.22%. China’s CSI 300 is up 0.33%.

In Australia, the S&P/ASX 200 is up 6.80 points, or 0.11%.

On the commodities markets, West Texas Intermediate crude oil is US$61.61 per barrel. Brent crude is US$70.38 per barrel.

Turning to gold, the yellow metal is trading for US$1,272.33 (AU$1,818.17) per troy ounce. Silver is US$14.64 (AU$20.92) per troy ounce.

One bitcoin is worth US$5,482.81.

The Aussie dollar is worth 69.97 US cents.

You or me but not both

If you want to find a bit of good old tribalism in finance, drop by your local stock forum. In there you will find robust discussion about stocks that people own. And plenty of robust discussion about stocks they don’t own.

What’s most fascinating is the all-out tribalism that occurs when there are competitors in a particular industry. You end up with one group of stock holders singing the praises of the company they’re invested in, and another group singing the praises of the company they’ve invested in. In between it all is plenty of mindless forum chatter about how much the other company sucks.

You also find a strong collection of people who love to invest in gold. These ‘gold bugs’ are often quick to highlight the benefits of gold ownership. Not least the fact that it’s physically tangible, you can touch it, feel it, store it in your safe.

If the financial system collapsed tomorrow, then according to many in the gold tribe, that’s what we’d be using to run the world.

There’s an equally strong collection of people who love to invest in bitcoin. The ‘bitcoin maximalists’ are often quick to highlight the benefits of bitcoin ownership. Not least the fact that it’s not controlled or run by a central authority, and that you can use it to actually buy goods and services.

If the financial system collapsed tomorrow, then according to many in the bitcoin tribe, that’s what we’d be using to run the world.

We often find that bitcoin maximalists and gold bugs clash quite aggressively. There are many (not all) who simply believe that one is far superior to the other and that in no circumstances should you own the other.

This particular tribal war has been going on since bitcoin’s fiat-converted price first passed the price of gold back in 2013. And ever since we’ve seen immense tribalism from both bitcoin holders against gold, and gold holders against bitcoin.

This has more recently come to the spotlight thanks to a mass marketing campaign by Greyscale, a digital assets manager. Their ‘Drop Gold’ campaign has flooded the internet with an advertisement that’s provocative to say the least.

Its core premise is that investors should ‘drop gold’ and instead invest in bitcoin.

According to a press release from Greyscale,

“There is a generational shift in how individuals are approaching investing. We strongly believe that investments in gold will be reallocated to Bitcoin as Baby Boomers begin transferring their wealth to a younger generation of investors, one that wasn’t raised on the gold standard,” said Barry Silbert, Founder and CEO of Digital Currency Group and its subsidiary Grayscale Investments. “The gold industry has done a fantastic job of marketing an overpriced metal, but Bitcoin has superior physical properties and market utility. I believe that Bitcoin will become the store-of-value for our digital age.”

Now if that’s not tribalism at its finest, I don’t know what is!

Silbert has some points, but he’s gone a bit too hard in my view. I think that all investors should at a bare minimum have some exposure to bitcoin. In fact I’ve repeatedly said on record that everyone with the capacity should aim to have and hold at least one whole bitcoin for the long term.

But as much as I think bitcoin is a better investment than gold, I also believe people should have some exposure to gold as well. There’s no need to be so ‘our way or the highway’ about it all. There’s no need for extreme tribalism.

There’s no need to smash a valid investment asset class because you’re so tribal about your own exposures.

When building a portfolio for long term wealth you should always start with your risk tolerances based on your position, your goals and your stage in life. When you understand what levels of risk you’re prepared to accept and what kind of funds you can invest, then you start to build a portfolio of investments.

An important key is to balance things out to ensure some of your assets are negatively correlated. For example in periods when markets have suffered some of their worst falls, gold has been negatively correlated, and often rises in value. But we also know that during the financial crisis post-2009 bitcoin also becomes an extremely strong asset to hold.

It bears to argue that you’d want to hold both bitcoin and gold in anticipation of any future crises. And that’s the real point here. In our lifetime we will probably see some kind of financial crisis.

We’re not sure exactly when, but the chances are pretty good. At least going off the occurrence of crises in the past, they do roll around every decade or two. If that happens, we know from the past that investors often flock to gold. But we would also anticipate that perhaps even more next time around would flock to bitcoin.

The two can and should coexist. They are not mutually exclusive. In my view both should form a part of a sound investment strategy. Of course that also includes things like stocks, cash, fixed interest and property in your own personal mix of allocations.

But thanks to tribalism we find on both the sporting field and in markets, many don’t see it that way. That’s going to be their loss. Smart investors know how to play both sides of the game. Smart investors know that each asset class has a place in a good strategy.

I reckon that there wouldn’t be too many smart investors that don’t have allocations to both gold and bitcoin. What about you? Do you hold both? If not, why not? Is tribalism getting in your way?

Forget tribalism. It has a place, but only for entertainment purposes. If tribalism gets in the way of your wealth building, you need to rethink your attitude to things.

Drop the tribalism and invest smart.

Regards,
Sam