Bitcoin hit a couple of milestones today. The most obvious is that its price broke $100,000. But its total market cap breached two trillion dollars for the first time as well.
I wrote three years ago that Bitcoin would be John the Baptist to Gold’s Jesus. I got ahead of myself. It turns out that there already was a Bitcoin Jesus, whose success brought him unwanted attention from his gov’t. And, although gold has done well this year, there is not yet a gold Jesus.
It is worth comparing the two. In the roundest of numbers there are 200,000 tons of gold above ground worth $17 trillion. Almost half (46%) the gold is in jewelry. Private investment accounts for 22% or $3.75T, and official holdings – central banks and such – account for 17% or $2.9T. So, Bitcoin, at $2T, is catching up as an investment vehicle. So far as I know there is no Bitcoin jewelry, but I would not be surprised if some vendor was already hawking very decorative Bitcoin hardware wallets. The official ownership of Bitcoin is not negligible, but small compared to gold. The FBI has confiscated and holds quite a bit.
Gold is awkward to own, in that you have to protect it. For that reason, most people keep their gold in bank safe deposit boxes, overseas vaults or in exchange traded funds. The couple of percent annual cost of holding it is not great compared to the protection it affords against financial crises, defaults and inflation.
Bitcoin, however, has a significant advantage. Holding it in a hardware wallet is free, and holding it in an online brokerage also costs next to nothing. Bitcoin offers a further advantage in that it is infinitely divisible. The smallest piece of gold that is practical to own, a 10g ingot, costs about $850. Shares in a gold ETF cost in the tens to hundreds of dollars, and the broker who would sell them to you is not interested in an account not measured in the thousands of dollars.
On the other hand, the smallest unit of Bitcoin costs in the pennies. Bitcoin is also safer, in that there is nothing physical to steal. The worldwide popularity of Bitcoin is therefore not surprising. It may have been invented in the United States, but the US is only 15th on the list of countries that make the most use of it. Turkey, Brazil and Argentina, all wracked by inflation, use it a lot.
The distribution of Bitcoin is wildly skewed, as the following chart shows. There are millions of accounts with only tiny fractions of a Bitcoin. Fewer than 1 million accounts have more than one bitcoin apiece, and there are four accounts with between 100,000 and 1 million. Even this probably underrepresents the concentration of Bitcoin wealth. There is no way of knowing how many holders control more than one Bitcoin address, but it is obviously more than a trivial number.
This skewed distribution means that the smallholders have to have a lot of faith in the stability of the large holders. If one of the whales decided to sell, he could depress the market significantly. As Streamfortyseven has recently noted in other of my posts, it would not be difficult for some malicious actor to crater Bitcoin in a hurry.
The small investor is facing the perennial dilemma of where he can safely and conveniently store his wealth. There is no good answer. And, there is no permanent answer. Bitcoin appears to be no more than one of the better alternatives at the moment.
I will close this post and repeating my question, what else is there? I remain heavily invested in gold ETF’s. I do not think there is a vast danger that anybody will find another mother lode anywhere on earth, or that they will be mining asteroids for gold anytime soon. The experts I have come to rely on, Don Durrett and my guy Quoth the Raven are both of the opinion that the current highs of the stock market are wildly unsustainable and that gold will rally when stocks fade.
The trouble with crypto is that it has no intrinsic value and is often a vehicle for pump and dump scams: "Welch launched the Hawk Tuah coin—widely seen as a memecoin, or a form of cryptocurrency that is typically created for entertainment purposes—on the Solana blockchain Wednesday evening. Welch’s coin quickly hit a market capitalization of nearly $500 million before immediately plummeting 95% to $25 million as of Thursday afternoon, according to DexScreener data. The coin’s price as of Thursday afternoon after 4 p.m. EST is $0.002439, down from a high of $0.04916 Wednesday evening, according to DexScreener. The chaotic launch appeared to result in big losses for some traders. Coffeezilla, a crypto YouTuber with more than 3 million subscribers whose real name is Stephen Findeisen, said in a tense X space conversation with Welch and her team the Hawk Tuah rollout was “one of the most miserable, horrible launches I’ve ever seen,” accusing Welch and her team of insider trading, which they denied. CoinTelegraph reported about 80 to 90% of the Hawk Tuah supply was controlled by insiders or snipers—or entities that purchase large amounts of a coin’s supply at its launch—citing blockchain data from Bubblemaps and DexScreener, though Welch said in a post on X her team had not sold any tokens and they “tried to stop snipers as best we could.”" https://www.forbes.com/sites/conormurray/2024/12/05/hawk-tuah-creator-haliey-welch-criticized-for-chaotic-memecoin-launch-in-latest-bizarre-internet-stunt/
and
https://bfi.uchicago.edu/wp-content/uploads/Gandal-Neil-etal-An-examination-of-the-cryptocurrency-pump-and-dump-ecosystem.pdf
Having had a billionaire for a close relative - my mom's second cousin - I can tell you that from what I've seen, there's a reason that they're billionaires - they're addicted to getting as much money as they can get, as a crack addict is to crack cocaine. They'll do anything to get more money - and they're never satisfied. They shouldn't be targets of admiration or envy, they're just like any other addict. And they're pleasant as long as they're getting more of what they crave, as pleasant as any other addict.