It was billed as the "monetary heavyweight bout of 2018" and a "debate of the decade." In one corner, hedge fund manager, entrepreneur, and computer scientist James Altucher, aka "The Bitcoin Baron"; in the other, attorney and finance authority Jim Rickards, aka "The Gold Guru." The two went head to head on January 25 at Stand Up New York, a comedy club in the heart of Manhattan, to settle the ever more prevalent question: Which is the better investment, the flagship cryptocurrency Bitcoin or that old, reliable standby gold?
Altucher has published eleven books and is a frequent contributor to the financial press. He began his career in the IT department for HBO. He also founded a startup called Reset Inc., which he sold in 1998 for $10 million and entered the world of investing. Despite initial hesitance, Altucher entered the cryptocurrency world in 2017.
Rickards is a lawyer who has worked on Wall Street for more than 35 years. He has regularly warned of the dollars inflationary tendencies and what he believes is a near-imminent collapse of the current monetary system. He has written a number of books on the topic and has regularly touted gold as a way to mitigate disaster situations. Most recently, Rickards has predicted that gold will reach $10,000 per ounce.
The debate itself was a fierce competition between two well-informed and accomplished standard bearers. Rickards came out swinging, predicting that gold would beat back Bitcoin's relentless advance by 2020. His reasoning, he said, was not just that gold would outperform Bitcoin, but that Bitcoin would plummet to as low as $200 per coin. Rickards is pro-gold for a number of reasons, but chief among them is that he sees it as the next asset accessible to much of the population that people will likely have faith in following the next financial crisis. And that crisis, Rickards added, is long overdue.
"In 1998, Wall Street bailed out a hedge fund. In 2008, the central banks bailed out Wall Street. In 2018 … who's going to bail out the central banks? Because they have not normalized their balance sheets. They have not normalized interest rates. They are not ready for the next crisis, which history tells us comes every 7 or 8 years," Rickards told the audience. "When that crisis happens, the only source of liquidity in the world, the only people with a printing press that are not over-leveraged, is the [International Monetary Fund.] They're going to print more money called [Special Drawing Rights] (SDRs). If you've already lost confidence in dollars, euros, and everything else, are you going to have confidence in SDRs? I doubt it, so then it goes back to gold."
Shifting seamlessly from defense to attack, Rickards launched a flurry of strikes at Bitcoin. It's too volatile, he said, and it's not easily transacted. Moreover, mining Bitcoin demands a vast amount of energy – according to Rickards, soon to surpass the demands of Japan's annual energy consumption – that could never be deemed accessible by global institutions and national governments.
But the champion of cryptocurrency would not surrender so easily. Altucher kept his gloves up, deflecting his opponent's opening salvo. Cryptocurrency, Altucher said, was plainly the next step in the evolution of human systems of exchange. Ages ago, we bartered for goods and services. Next, gold was employed to solve basic issues of equal exchange in bartering. Finally, beginning in the 1970s, the monetary system was severed from gold to make it more flexible and open to manipulation; thus began the era of fiat currency. Cryptocurrency addresses the many problems of a fiat money supply, Altucher said, problems which include a lack of privacy, indirect transfer of funds, and inflationary tendencies that come along with a series of middleman fees.
"Cryptocurrency solves the problems of paper money. If I send money to China, it's just between you and me … nobody else involved, no banks are looking at it, and it's roughly private," Altucher said. "There's no chance for forgery, there's no chance for double spending … [and] I can store my cryptocurrencies any way that I want. It's very hard to store gold, and it's really hard to move gold around the world."
While cryptocurrency is not without its own problems, Altucher added, these can often be solved by new iterations of cryptocurrency. For example, he said, coins like Dash make improvements on the speed of transfer, and coins like Monero improve privacy considerations. These "problem borders" are easily addressed, while conventional currencies are subject to the constraints of geographic and national boundaries.
But what of Rickards claim that cryptocurrency is far too volatile and difficult to transfer? Altucher floated above this claim like a butterfly, claiming that cryptocurrency would become more stable as the supply increased and, ultimately, could be pegged to a fixed basket of goods just as fiat currency is today.
"Eventually, every type of currency replaces the older form," Altucher said, predicting that if cryptocurrency were to replace fiat currency in its entirely – satisfying a global demand for $200 trillion in value – one Bitcoin would be worth $1 million. For Altucher, that is the inevitable future so long as the evolution of money continues to trend toward cryptocurrency.
After deflecting his opponent's strikes, Altucher went on an offensive of his own. Gold is not always fungible, he said, meaning that one ounce of gold in the form of a coin, for example, would not necessarily equal one ounce of gold in the form of a necklace. One Bitcoin, on the other hand, would always equal one Bitcoin, no matter the value at the time. And good luck storing and moving large amounts of gold with any ease at all, he added.
But Rickards is a heavyweight contender capable of absorbing a few punches, and he was not on the ropes just yet. He began with Altucher's claim that gold replaced systems of barter, refuting the notion that barter was the ubiquitous system of exchange. Instead, Rickards said, it was truly a system of credit founded upon the idea that if I provide you a good or service and trust that you will return the favor in my time of need. Rickards also agreed with Altucher's criticisms of the fiat monetary system but resisted his claims that cryptocurrency fully ameliorates those issues. For example, Rickards said, cryptocurrency is not truly private and is heavily monitored by governments. Moreover, each coin is on its own blockchain, and each blockchain adheres to its own governance model. Finally, a lack of regulation has created an environment rife with fraud and subject to class action lawsuits, which threaten to undermine the entire foundation of cryptocurrency.
Altucher countered, though, reiterating his belief that cryptocurrency is able to solve its own problems by devising new coins meant to address gaps in the system. Ultimately, the clash of the currency titans came down to one fundamental disagreement on the answer to an essential question: When the current fiat regime deteriorates, which each agreed it will for myriad reasons, will we revert to gold or progress to cryptocurrency. But much like a goldfish is unable to discern that it is swimming in water, those of us in the midst of the era of fiat currency can at best only guess what the future really holds.
Gold vs. Bitcoin Debate Part 1 of 2
Special thanks to Scot Cohen, Cofounder of Bitzumi, for permission to shoot the event, and to my friend Dani Zoldan for permission to shoot in his club, Stand Up NY. We took some grainy video from the back corner of the room to give you an inside view of the event.
Keep reading to get access to the second half of the video, and to find out more about the rationale that underpins Altucher's prediction that Bitcoin will explode in value in the coming years, ultimately replacing the current fiat monetary system in favor of cryptocurrency. Also, find out what role could gold play in your portfolio. Can cryptocurrency and precious metals co-exist in a coherent long-term investment strategy? Is Rickards' faith in gold grounded in solid logic? While the Cryptosumer team are not financial advisors, we offer some additional analysis on the matter that could help you plan your strategy accordingly.
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