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Comment by cwyers | Hacker News Reader

The article's premise is that people want to buy gold and Bitcoin because they are both stores of value and they're bearer assets, which means that you don't need a third party to store them for you.

That seems... somewhat suspect as an explanation, given that most people who have substantial holdings in either store them with a third party. I think that there's not much in common between most current gold holders (who are looking to hedge against drops in other markets), and current crypto holders, who are often speculators,hoping for big returns on investment.

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They want to own them until they suddenly don't and the price plunges. We saw this in May 2021 with bitcoin. And with gold in 2011-2014, etc.. Silver in 2011. Everyone thought Bitcoin would keep going up due to stimulus spending, stimulus checks, and inflation, and when whoosh 40% lower. By the time you buy gold as a hedge, it is often too late..a lot of inflation is already priced in.

> By the time you buy gold as a hedge, it is often too late

I just pick a percentage and keep that as gold in my portfolio. Trying to time it, just makes me nervous. I think I keep around 15 percent or so.

This is the way. From what I read, it's really, really hard to time the market, and often, not even that lucrative. One of the best strategies seems to be to go against human nature, and be patient, consistent, and to stick to a plan over a long time.

Yeah and I get that lots of people don't feel like parking 15% of their savings in something that's not really yielding. But it keeps the heartburn away :)

I totally agree. I have no idea what's happened to the stock market over the past week and I'm at peace with that. If the market goes up, I have more money. If the market goes down, it means I'm getting a better deal with my per-paycheck investment transactions. I recently finished When Genius Failed, which is a great book that further convinced me to stick with my lazy approach.

Same strategy works with bitcoin. Put 15% in it and just keep it. On the next bull run it will become >90% of your wealth. Really no need to scale it back to 15% then unless you need this kind of money.

Wow, that's a lot of gold. I prefer something akin to the 60/40 approach. Then again I'm decades away from retiring. I might become more conservative as the day I start needing that money draws near.

> By the time you buy gold as a hedge, it is often too late..a lot of inflation is already priced in.

If by "hedge" you mean a hedge against inflation, it seems to be of questionable utility:

> Gold objects have existed for thousands of years but for many investors gold has only recently become a tradable investment opportunity. Gold has been described as an inflation hedge, a “golden constant”, with a long run real return of zero. Yet over 1, 5, 10, 15 and 20 year investment horizons the variation in the nominal and real returns of gold has not been driven by realized inflation. The real price of gold is currently high compared to history. In the past, when the real price of gold was above average, subsequent real gold returns have been below average. Given this situation is it time to explore “this time is different” rationalizations? We show that new mined supply is surprisingly unresponsive to prices. In addition, authoritative estimates suggest that about three quarters of the achievable world supply of gold has already been mined. On the demand side, we focus on the official gold holdings of many countries. If prominent emerging markets increase their gold holdings to average per capita or per GDP holdings of developed countries, the real price of gold may rise even further from today’s elevated levels. As a result investors in gold face a daunting dilemma: 1) embrace a view that “those who cannot remember the past are condemned to repeat it”, there is a “golden constant” and the purchasing power of gold is likely to fall or 2) embrace a view that “this time is different” and the “golden constant” is dead.

* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2078535

TL; DR:

> To recap, gold is not a productive asset. It has a real expected return of 0. That is, based on history, it might keep pace with inflation over a millennium, but that’s probably way longer than most people want to wait. Even as a safe haven based on its low correlation with other assets, gold falls short in a portfolio due to its non-existent real expected return. Finally, while gold’s purchasing power is unaffected by inflation, that does not mean it will maintain its purchasing power in the face of inflation. This calls into question its ability to hedge against extreme currency events.

* https://www.pwlcapital.com/will-gold-save-the-day/

Indian individuals have more gold stashed under their beds than then USA gold reserves. Mostly jewelry. It's a tremendous drag on their nations productivity. But hard to argue with given their history. They are by far the largest single source of gold demand.

Interesting. Do people use it like a savings account? If the money is needed, how likely is a person to liquidate part of their stash?

> The article's premise is that people want to buy gold and Bitcoin because they are both stores of value and they're bearer assets, which means that you don't need a third party to store them for you.

> That seems... somewhat suspect as an explanation […]

It's a perfectly reasonable explanation, but it begs the question as to why people want to hold an asset (class) with those properties in the first place.

For that you probably need a psychologist more than an economist.

The author touches on that:

"Some societies are more collectivist or individualistic than others, and then within those societies, various members range across a spectrum of how much they trust the system.

I think a big portion of one’s perception on this topic of gold or bitcoin is shaped by life experiences or disposition. Growing up in a smooth environment where things just “work”, with no major currency failures or oppressive regimes, leads one to trust institutions more. They are fine with the concept of centralization, and giving up certain rights in exchange for certain conveniences."

The way I see it even you have crypto in your own wallet, you don't have self custody. Cryptocurrencies are consensus protocols that require a network to operate if the network goes down, you can't transact in them making your holdings useless.

What about billions of dollars of capital that have interest in network not going down?

Doesn't it make it more like self custody if you are virtually guaranteed that network will stay alive?

Doesn't that describe literally every financial asset? After all, a piece of paper or a yellow rock only has value because other people are willing to give you goods in exchange for it.

Partially. I have a hard time getting excited about blockchain as the solution to everything because of the issue GP points out. I took a blockchain dev course on Coursera out of curiosity and realized just how fragile some of these projects can be. Bitcoin is more resilient than most for a number of reasons, but it still relies on an outside network more than me selling my house or a chunk of pretty rock.

That's the paradox of Bitcoin. Boosters talk about how you can disintermediate the entire financial system, which admittedly sounds pretty cool. Except if you want to live on Bitcoin, you end up working with institutions that look an awful lot like traditional financial corporations. So what's the day-to-day advantage?

Not that you’re wrong, but I know a lot of people with substantial holdings all of them self-custody. (I personally think it’s crazy and companies like anchorage have a good market to serve.)

Not just because they are a bearer asset but because their scarcity retains purchasing power orders of magnitude better than paper money.

Wait, what?

Bitcoin retains purchasing power? Better than money?

Can you explain? In what real-world scenario does Bitcoin have stable purchasing power?

I’m not claiming a fact, I’m quoting the article since you made a statement that didn’t accurately represent it.

> (...) their scarcity retains purchasing power orders of magnitude better than paper money.

Bitcoin market price tanked from 54k to 29k a few weeks ago, and currently is still around 30k.

That's not exactly what I would call retaining purchasing power.

Make sure you mention the currency. It sounds like you're talking about the BTC/EUR exchange rate.

But many people shouting this, they bought at levels below 5k for btcusd. Then it retains purchasing power fine. I am going to say we will see below 5k again within 2 years though, so you can have another chance to get purchasing power for btc yourself.

Yeah, and it went all the way up to 60k+ in about the same time. People who bought the top in 2017 have literally doubled their money. I wonder how much purchasing power bitcoin holders will have 10 years from now.

> Yeah, and it went all the way up to 60k+ in about the same time.

No, not really. In fact, today it's still lingering around 32k.

Regardless, it seems you inadvertedly tried to make the case that indeed Bitcoin is highly volatile and does not work at all as a store of value.

It’s over 40k, so either you don’t have access to real time data or you are trying to paint a picture that you prefer to believe. You can’t expect zero volatility in a new money while its being adopted. It’s the only fixed supply money in a world that’s printing paper like crazy, where do you think that trends trends to?

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