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Hello, it's Maren sum set Web here. We've got a very special episode of Marrin Talks Money for you this week. As regular listens to the show, you will know gold versus Bitcoin is a debate we love to have on the show every week. In fact, how I end every episode. So we thought, rather than just saving that question for the end of every show, we'd make an entire show
around it. So this week we bring you the conversation I had with Charlie Morris, chief investment officer and founder of Fike Tree, and Alexander Charter's fund manager at Ruffer in front of an actual, real live audience at Bloomberg headquarters in London about which of these assets they would
hold and why. But first, as always, senior reporter and author of the Money Distilled Newslater, which by the way, is excellent sign up if you have not already written by John Steppeck And here he is with me to chat John Man, John who knows that we are a bit frustrated with him.
The list is endless for sure. Who you're a filmed to?
Oh, come on, you must have listened to poor old well you know how we used to say Portries and me. We're going to start saying poor Richie Sunac, poor Richie sac As he unveiled what they call a seventeen billion pound package of tax cuts, he says, I am not blind to the fact people are frustrated with me, and he admitted that he's not got everything right now. I know you've looked at the manifesto. Is he ever going to get anything right?
Actually? Know what?
The thing that the aspire to do, which is getting rid in national insurance is a good aspiration.
Why didn't they do it a decade ago?
Though?
I mean yeah, I mean basically everything that's on the manifesto. You can either say, well, walkie, if you think this is a good idea, why didn't you try it X number of years ago? And a lot of the things in the manifesto actually thought, look that this idea bringing back help to buy?
Oh god, but it is interesting, isn't torupt have to interrupt because you mentioned helped to buy?
It?
Is like presses every button, every button? You know how sometimes people might make a policy and they think it might work and it sounds good and they haven't got actual evidence to show that it's a rubbish policy. Yeah, helped to buy isn't like that because we've had it before for yolks, and we know it's a terrible policy. We know that in areas of high demand, all it does is push out prices for first time buyers.
We know that.
Why would you reintroduce it when you already know that it's a subsidy program for house builders.
I think that it's mostly because the Vares. It seemed that the first time buyers don't fully appreciate that. And you are absolutely righty by me because actually another side effect that helped to buy Hide Boys rightly led to the person in chief executive getting that massive pay package, and that in turn led to the I think I think that was the tipping point for chief executive pay in this country. It became the point at which all the you know, the kind of advisory committees said no,
we're not We're not having this anymore. And now we've got you know, the new regulators kind of pushing back against that and saying we like, there's no law saying that ukchief executs can't have packages done more like us once. So that's interesting in itself. You know, you can argue that you know, Helped to Buy directly affected the health of UK capital markets by drawing attention to one particularly egregious people.
It did, and getting us into a situation where we have chief executives across the UK talking about shifting their left, listening to the US they get pay properly, or just leaving and going to the US so they can get pay, probably Ashted being the most recent example of that.
Right.
Anyway, let's not get hang up on help to Buy. John and I have written about this a lot over the years. Go back read our columns on it, but basically rubbish policy not required.
Well, they're talking about building more houses again, kind of like, well, okay, that's fine, but again, you have been in power for fourteen years for whatever reason. Now whether you think building more hous is a good idea or not. And I actually think it's more about reform and planning than necessarily saying we have to have this number of houses. And I think actually that will probably quite often lead to disaster because you build houses where people don't actually want to be.
Whereas if you reform planning, the market will give you houses where people need houses.
Yeah exactly, but it's kind of like, well, why do you think that's saying that you're going to build one point six million is somehow going to magic one point six million houses out of nowhere when you've been saying we want to build houses. It's not as if this is a new commitment. It's not as if they've turne around and said, oh, we don't like building houses. Now they're going to find the magic key to do it. I just think it's that sense that you're going to
get more of the same. There's all the kind of kidding on about fiscal responsibility as well, which is the irritating thing because obviously all of this is going to cost a bit more money, and so they're saying, okay, well why are you going to raise the money? And we're going to raise the money. I think it's six billion in tax avoidance, which is you know, kind of you're kind of like, well, look at again, if that six billion is just sitting around, how come you're not already collecting it.
To get that last year or the year before or the year before. It's just been sitting there down the back of the South were waiting for you exactly.
And then it's twelve billion in welfare reform. And you know, while I'm sure i'd be among the first to say yes, I'm sure there are areas where we can do welfare reform and where it's inefficient and all the rest of it, the question again is, well, why we're at the situation where there's apparently just twelve billion line around to be picked up from the kind of benefits system, and it's
and what have we been doing without it? Out of the sake of for the sake of what you know, It's like, why are you suddenly going to get more efficient if we vote for you?
Now?
You know, it's one thing if labor says stuff like this, because although you know they're almost certainly talking rubbish as well, at least they haven't actually been in charge for any period of time, so.
Them, why didn't you do it? Now?
Listen, One of the things that you and I've talked about a lot of the narrowing of the tax base and the percent of tax station paid that comes from the people at the very top. And you pointed out to me earlier really eye catching statistic from the IFS which tells us that a higher proportion of over sixty five is now pay income tax than working people pay income tax.
In twenty ten twenty eleven, it was forty eight percent over sixty fives paid income tax, and it's now sixty five percent, whereas the number of workers paying income tax has fallen from sixty one percent in two eleven to fifty eight percent.
Now.
It is expected to go back up to sixty six percent by the twenty twenty nine tax year. But it just, I mean, it just shows you. I mean, it's partly because pensioners actually did used to have a slightly higher personal allowance, but it's mostly because they've had pretty decent
income growth. Whereas also obviously a lot of the Conservative Party policies have been named at taking the lowest paid people out of the income tax net altogether, whether or not that's actually a good idea, And I think our view is the problemise of if you rely too much on the people at the top, because what is that they share the income tax payer by the top ten percent income taxpayers has gone up from fifty four percent to sixty percent now, so you're becoming ever more reliant
on our very small group of taxpayers to prop everyone else up.
Yeah, and you could always say that you have an a lot of people who who by not paying any income tax at all, maybe and have quite the same stake in how taxation revenues are spent than other people. Old fashioned argument, but I think it's still got some validity to it.
Yeah, yea, I broadly agree with that, because I think when people go from not paying tax they suddenly pay in tax. They get a kind of wake up call. And the problem is if if nor win't the kind of minimum made jobs there's actually pay an income tax, then I think there's a there's a lacky participation in that funny kind of way.
Well, I say that just because I'm fascinated by when, you know.
The young people around me when they get their first job, waitressing or whatever it is, and they come home with their first paypacket, an emergency tax has been taken out and they lived in there like, oh my god, they took all my money away, like yes they did, Yes they did, and they're going to keep doing that for your whole life. And it's a horrible shock when they see that number and they realize that's how it actually works.
They think they are under certain amount. They added up their hours in their head, and they've added up their percentage of the tips, etc. Get the paypack it in half.
It's gone faithfully. What you're seeing is the instantly becomes somewhat more conservative, and yet it's been a conservative government that's pushed them all out of the tax.
Envelope.
I think it was Nick Clegg who had this a little idea that you should get as many people as possible out of the tax neck and they should make the allowance bigger and bigger and bigger, so that fewer people at the bottom paid any tax at all. I remember discussing it with him once and I get that, and you know, you're quite right. The more of anyone's
money they get to keep, the better. But maybe if we all have to be part of this system, everyone should be paying even a tiny bit into it, and understanding that they pay a tiny bit into it, and so they have some stake in how it's spent as well. I don't know philosophical arguments that they're probably too much for this podcast, too much for this podcast, But I
tell you what, John, you know what you need. And an era of debt and deficits and political instability and changing governments here in Europe and the US everything's a bit uncertain. Bit confuser that there's a lot more instability inflation ahead. Do you know what you need?
I can't possibly imagine.
Welcome to Meren Drugs Money, the podcast in which people who know the markets explain the markets. I'm Meren Sumset Web. Let's get my conversation with Charlie Morris, chief investment officer, I'm founder with bike Tree and Alexander Charter's fund manager Rougher at our special event in the Bloomberg offices in London. Cannopis and drinks by the way, Sorry you'll wren't there.
Focusing on the question bitcoin or gold. Now, as I mentioned, it's a question I ask all my guests, so here's a quick reminder of some of the answers we've received in the past.
I'd probably go for gold, bitcoin gold, bitcoin gold, gold, bick gold gold. For me, old gold would not be bitcoin, but I think I could do better than either.
Really, so overwhelming support for gold among the Marion Dogs Money guests, but not so black and white for Charlie and Alexander. I start the conversation by asking alex why is it that we're talking about holding assets like bitcoining gold. Right, now, what is it about geopolitics? What is it about everything going on around the world that means that you need this kind of anti fragile insurance asset.
I think the headline is we're in a period of extraordinary regime change for markets. We've had forty years of falling inflation, interest rates, economic volatility, and very atypical geopolitical peace.
And that was driven by things like China.
And the former Soviet Union rejoining the global trading system, massive positive supply shock, cheap energy, most favorable demography of all time, literally, small state revolution, you name it, plus tech. It was all disinflationary and so it's been manner from heaven for investors for four decades. You've basically just have to hold something equities, bonds, real estate. It's all gone up and asset love low and stable rates and inflation.
So if anything comes along to change that dynamic, the portfolio logic that's dominated the last generation also needs to change. So what's happening now. You've got fragmentation of world order, so retooling of supply chains because relations with China and the West are much more fraud You've got more expensive and potentially volatile energy. You've got the big state coming back in large size in the economy with fiscal policy driving much more vol Demography is reversing. You've got the
biggest population bust of all human history. So if you put it together, you've got a more inflation prone and volatile environment. That means that you can't rely on things like the negative stock bond correlation that's dominated for a generation. So you need alternsive assets, real assets that are anti fragile to get you through what we think comes next.
Okay, so basically everything that starts with the D has turned. Yes, Demographics, end of the peace evidend, decarbonization, deglobalization.
That's the big change.
But we look around US now and we see inflation falling, and you know, thank which you're seeing it's very kindly auto inflation back to nearly two percent for us.
Yeah, well done him, amazing, amazing. Yeah.
Look, the key thing is inflation volatility. So no one's saying it's not going to come down. It's just that probably in the era ahead, the floor will typically be two percent inflation rather than a two percent ceiling as we have for the last generation. And you only need very small changes in the amount of inflation around to fundamentally change cross asset correlation. So in plain English, when there's not much inflation around, bonds and equities tend to be negatively correlated.
To your bonds go up when your actities go down.
But for most of history, if I drew a chance that back to the Napoleonic Wars, you'd find that bonds and ecpties tend to be positively correlated. So if there's a bit more inflation, it will be positively correlated more often.
You need other assets. Enter the conversation tonight.
Okay, I want to ask you one more thing before we move on, which is you and I've talked quite a lot over the last four or five years about this regime change, about regime change in markets, regime change geopolitically, etc.
And it's a story that I think what we.
Both feel is is right. But what could happen to make you feel that this story is wrong, That perhaps it isn't so bad, that perhaps we're just going to slip back into the previous path and carry on as was.
There are a few things, But first of all, I wouldn't necessarily characterize it as bad.
It's just different. Actually, it's very tirely.
Give you that different than there are lots of good things about it exactly.
So it's just a different opportunity set and a different set of assumptions. What could change if you had a dramatic change in relations between the US and China, if you had a monster productivity miracle around say Ai, if there was some sort of other technological dis sex machiner that solves the problem.
Unfortunately, given the.
Massive debt situation, because as those rates fell for forty years, debt ran up and people didn't think it was a problem because the cost of servicing that debt was also very low because rates were coming down. Because now rates have gone back up, people realize it is a problem, and paying for the reversal of those d's that you described earlier is very very expensive when you've already got debt to GDP ratios at all time highs and the debt service ratio shooting up quickly.
Okay, Charlie, when you look at this situation that he's outlined, is that how you see it?
Absolutely? I think that when you have a large high debt GDP ratios and you've got structural deficits and it's a year of elections, and no one is talking about bringing down the deficit. Not a single actor in any parliament here or in America or in Europe cares about that deficits anymore. So it's only going one way. And I'd also say that the money supply has been a growth has been very very low in the last few years.
Come around the world, and what we've seen is, you know, quite impressive behavior from asset prices, despite the fact there hasn't been vast amounts of money creation since twenty twenty one. And that really tells you that the pent up demand for inflation. Once they start printing money again, what would happen in that environment.
Okay, so we can't trust fit anymore. Well, not that we ever could trust Fit, but we're in a situation where we can trust Fit even less than we've been able to over the last couple of decades.
Fear money is brilliant if you you know, if you treat it carefully, and you know, there are some countries that really don't, and we've seen that, We've seen what happens there in place like Turkey and Argentina.
Do we treat it carefully?
No, we don't. We once did, but don't we don't anymore.
If you go back to seventy one, when Nixon pulled America off the gold standards, you had a price of thirty five dollars a try ounce. The price on the screen when we do this podcast is twenty three thirty. So you've lost in the principal reserve, the currency of the world. You've lost ninety eight percent plus of your value. Okay, don't trust fit.
Don't trust fear. Anyone trust fit? No, No one trusts fit. Right, So in this environment, we can't invest in the way that we have all the way previous generators have. We can't look back at the last forty years instead of we replicate that will be absolutely fine. So what does let's go back to you, Alex, what does a portfolio look like? Now?
What should it look like?
Well, it's going to have a wider range of assets, and it probably than the traditional equity and bond setup that's done so well over the last twenty five years
or so. That means using commodities more often, it means using FX, It means using anti fragile assets like derivatives, which in a world where you've got higher correlations between cash assets if they all fall together, you want to protect your self, you need derivatives as well, and of course, mon that will include anti feat assets, investments in a bear market, in institutional trust as Bank of American Memory described, it not includes gold.
Okay, explain to us briefly what you mean by anti.
Fragile things that profit from volatility and instability in the situation. So you don't just want to survive the sort of stress that the system will throw you.
You want to be able to thrive.
Okay, Portfolios, how do they look to you in this environment? And I know that you focus at the moment mostly on bitcoin and gold, but obviously you have a long history of investing in all sorts of things.
I still do that, by.
The way, Sorry, only readly golden bitcoin.
Yeah, we're talking about gold and bitcoin today. But of course, you know, I think that if you can take a more resilient approach to portfolio management than normal. Obviously we're in extraordinary times because we've seen you know, we've got these indices. It's very very popular these days to track indicies and have a passive portfolio, and you know, low fees a theme with this podcasts have always sort of you know, count to fition through that. But then you
have a huge concentration risk. And it's not just the S and P five hundred or the naset that's concentrated. The footsier is half, the footsie is twelve stocks. And you see this all over the place. And I think if you embrace good old fashioned value fundamental investing, you're in a better position because you're prepared for the unknown. You don't know what's going to go wrong, and when you just know that it will at some point, and
you know, greater diversification. Miss Alex has said, if bonds and equities are basically correlated, then that means when one goes up, the other one, you know, goes up as well, and they go down together. That's what it means. And therefore we need to find other additional sources of diversification. The traditional one is gold, and now it's got a thread called bitcoin, digital gold, digital gold.
Right, Okay, well why don't we talk about gold? Your bother al was the itching to talk about gold. I can't keep your furt right, So Alex, why gold?
It's got a five now five thousand year pedigree of being the hard money choice. It's the preferred neutral FX asset and there's no counterparty for it. It's inert, has a low amount of additional supply of a year versus the stock which keeps it hard money. And crucially at the moment, you can see people voting with their feet. So one of the most interesting things in markets is always stealth bullmarkets, bull markets that are not liked and
are not widely observed. And of course Western investors have been selling gold if you look at holdings of bully and ETFs for example, because rates have gone up, but gold has decoupled from its traditional relationship with real interest rates on the dollar.
That's basically because there's a new big.
Cast of buyers that aren't so interested in that China in particular India to a lesser degree. In China's cases, especially central bank and retail. Why are they doing it? They don't trust the dollar anymore. So that's a canarian the coal mine for monetary change, and they are still going to this asset of choice, and that is likely a structural trend and a more inflation prone and volatile environment.
Okay, let's talk a.
Little bit more about that.
Why does it make sense for central banks to hold gold. Well, you say you don't trust a dollar, but how does this work?
If you hold most of your reserves in US dollar assets, you're ultimately in the hands of the US authorities. And as you saw after the invasion of Ukraine, what the Russians discovered very quickly, which they didn't expect, is that those reserves got confiscated. So part of the system over the last forty years has really relied on the recycling more than that, actually fifty years has relied on the recycling of excess surfaces from the rest of the world
into US dollar denominated assets. People don't want to do that, so so much of themore they don't have confidence they're safe, so they want to own a neutral FX assets that Uncle Sam can't control. And gold is therefore taking up a larger share of reserves.
Neutral and what does that mean?
Well, can I come back on that question as well, because gold had many different roles over the years as official money, and it's sad time as being official and time have been unofficial. And we can start the conversation shortly before nineteen seventy one, as Alex mentioned, and really gold was the original financial technology, the original fintech, because if you went on a sailing ship to the other side of the world and you were trading something, this
piece of gold was pretty hard to forge. I know there's tungsten and things like that, but actually you could tell gold was gold. And therefore it was a technology that transferred value equally and fairly around the world. It was a pretty powerful idea when you think of it in those terms, and the nineteen seventy one system. There are lots of reasons why it happened in the Vietnam
the money came to be, but one of them was technology. Finally, we had telephones and computers that enabled to have a sort of real time Bloomberg Ye type by sell system of lots of information and data. You couldn't really have done it in quite the same way in the same scale much before that, computers weren't good enough. And so I think that's something worth remembering. And so as it started to work, and that's the inflation of the seventies cooled down the By nineteen eighty two, you had two
decades where gold was completely irrelevant. Having been a twenty seven bag in the seventies, it was relevant for two decades and I think it found its metal fundamental value. By nineteen ninety nine, it was irrelevant in central bank circles. Gordon Brown had sold many European central banks had reduced their holdings as well. But you know, at that point
that was the low. And then slowly but surely people started to pick up on their interest in God without any formal declaration, and by two thousand and nine, after the credit crisis the emerging market central banks went, do
you know what, It's not such a bad idea. After all, it had already gone from you know, two hundred and fifty dollars up to about one thousand at the time of the crisis, and then they started accumulating, and they've been accumulating every year since two thousand and nine, and it's recently started to accelerate. So I think, you know, you've got to sort of wonder why this asset and it's not written down anywhere that you know, central banks must own gold, but they just chose to, particularly in
the fast growing emerging world. It's only in the West where we've sort of lost interest in this asset. And find my final point is that in twenty ten eleven, and I remember it clearly, you know, being a portfolio manager in London. Back then everyone was all over the gold ETFs. It was big news of how how big they've become, and people were showing off their allocation. And today they can't set it fast enough. The wealth management industry, the pension funds and so forth have given up on gold.
So that's more money flowing out of gold ETFs in the West.
Correct.
Yeah, I do think it's interesting you say about central banks holding gold, because it is one of things we don't really talk about much. Everyone sort of accepts that central banks hold gold. But if you stop think about it, what it's strange.
Well, it's stop strange as not if you look back, but.
If you if you were to sit down and say, you know, they don't dollars anymore, they're cutting down doors and they've got big.
Parts of gold to know something we don't about commitments to the value of currency, which of course what Cynop would say.
So there's there's one other point about gold we haven't mentioned. You know, it's a massively liquid asset. Liquidity itself is hugely valuable and according to World Gold Council, the quiality of the gold market is one hundred and forty five billion dollars a day, which is not far off the S and P five hundred bitcoin, which I'm sure will
come to. It's also a highly liquid asset. So you know, what Alex has been talking about is, you know, allocating to different things in the portfolio anti fragile assets and so forth. Commodities. You know, made lot of commodities are not particularly liquid. And the frozen concentrated orange juice in in Eddie Murphy's Best Film of All Time, for example, there's not a particularly liquid asset, even though it is
a liquid art is not liquid. But you know, the two most liquid alternative assets in the world are bitcoin and gold.
We'll come back to to bitcoin, Charlie promise, whiching to go what we've just been talking about the fact that the main buyer of gold at the moment in central banks, and that's what pushing up the price. That rather explains why we're not seeing much action in for example, the gold miners. Normally, when the gold price goes up, retail investors lakes US we will rush out and by gold miners right because they're going to follow, and this time they have happened.
Yes, well, it's actually Alex he said in the greed groups. I'm not going to take his idea. He said that the Chinese are are buying gold. It's a retail investor in China don't have a lot of choice and what they can invest in. We in the West have much more.
Tube retail investors in China are buying I keep reading little gold beads.
Yeah, that's right.
I mean, look, fundamentally, everyone is going to want to own lots of stuff that governments can't print, because we're going into a world where to pay for those these government prints paper to buy real assets. Ultimately that finds it swing to copper and things like that for grid buildouts and.
Rearmaments and so on. So I think people are sniffing this out in their various ways. And in the.
West, if you get lower rates and Western investors coming back to gold for any reason, that's an additional kicking out. We should say short term, all this stuff is obviously run pretty hard, so don't be surprised by the significant pullback or we are talking about long term trends. So with the right time rise and it's interesting.
Okay, So should we as retail investors, should we be.
Buying bullion, Should we buying coins keeping them a home, should we buying ETFs? Should we buying miners? Should we buy mining ETFs? What should we be actually buying to reflect our interest in gold?
So on the on the relative value trade, you know, which is the cheapest historically compared to where gold is. You know, silver and miners are obviously obviously offering a lot of good value there, but they're only going to They're only going to do well if gold goes up. So you know, if gold's not going to go up, then then then to stay it clear, because they're not going to they're not going to catch up with gold standing still. But I do think that it's also worth
looking at the volatility of these things. The gold miners are basically more volatile than bitcoin now. And as Alex was saying in the green room, the Chinese private investor is not buying gold mining shares, they're buying gold bullion. They're not buying silver either, and so so you know, you've got to think who's buying it, and it's well, it's the West, and of course the West aren't gold,
so they're not buying gold miners either. And so I think we've had no inflows into the gold mine ets for ten years or something like that, and we've had outflows from from from from gold. But to me, that's all bullets. They're just too cheap. We know why they're cheap because no one believes the gold story, or not enough people believe the gold story. But there are plenty of sound reasons why it's underpinned massively. So so I would think silver and the miners are a very good
thing to do for gold itself. Absolutely, for the conservative investor, that's what they should be doing. And the ets are fine. There are conspiracy theories about ets all the time. You don't need to listen to them. They're not true. ETFs are fine. But if you want to own bullion or metal,
the metal itself. As a British citizen owned the sovereigns because they're tax free, capital gainst Taxbrey Goney favorite miners, Yeah, to Rex would be one in Canada and sent them in you know in Egypt that London listed in Egypt. I think that you know, they would be quite quite good choices.
Okay, and Alex in the fund you hold.
Gold, how we've got about ten percent, maybe a bit more across precious metals exposure around so about five percent of that's gold miners. Most of that is through our in house gold mining fund, which has a range of smaller midcaps. We've also got a decent position of Numont, which is the biggest gold miner in the world.
We also own some silver billion.
Silver billion traditionally has a beta of about one point six y gold, which means that it tends to move in a magnified way one and a half times up or down whatever gold's doing. And there's a very interesting long term fundamental story there. Eighty percent of silver is created as a byproduct of other metals, and demand is going up.
On the industrial side.
We've also got a bit of platinum in that space as well, which is twenty times rareer than gold. So we've got a bit of a spread. But gold miners and silver offer effectively leveraged exposures to the gold price.
Okay, brilliant, right, we've covered gold.
Good news, Charlie.
We can turn a bitcoin tell us.
A bit coin story.
So Bitcoin was designed around the idea of gold limited supply, and so the supply side characteristic of bitcoin is is very very similar. Indeed, in fact, the new supply growth of bitcoin now is slightly lower than goal. But but so what the important point about bitcoin is that it's a neutral asset like gold. It's respected down the world. It's it's very very liquid, very very very liquid, unlike many other so called cryptocurrencies, and you know, it's the
real deal. I think that some people would be very skeptical because it's got no physicality about it. Well, there is a physicality in two forms. One is the you know, the energy intensity. There is a sort of real world part to the bitcoin story. If it was easy to mind bitcoin, it wouldn't be valuable. If someone was in control of you could make bitcoin really really easy to mine, or rather you could maintain the limited supply, but there'd be there'd be a controller of some kind, there'd be
a sort of board or CEO or whatever. Then then it's not an independent asset. So I think that you know, if you want it to be taken seriously, the design is as it is. The physicality the lack of physicality doesn't matter because you don't really own a bitcoin a thing. You own a share of a valuable network. And that hugely valuable liquid network is what it's all about and if you're wise enough to own a little bit, then then you know that that that's your price. You have
a little bit of that. I mean Warren Buffett once said, you know, I wouldn't pay twenty dollars to buy all the bitcoins. Sorry about the accident, but I wouldn't pay twenty dollars to buy all the bitcoins. And if you whatever, you paid for all the let's say you wanted to buy all the bitcoins and you had the money to do that, then you would soon have zero money because you destroyed the network. It's a bit like owning all the telephones, so who you're going to call? So it's
a very simple. This idea of a network is valuable.
So the value is in the energy intensity of its production. Its production is security, okay, because that's what tells you that it will always remain scutts.
Yes, well, the scarcity can be baked in that. You can copy the code, and bitcoin code is freely available on the internet. You help yourself. You can go and launch your own give it a name and good luck. It'll be worth a trillion dollars. But it won't be worth a trillion dollars because twenty thousand copycats have failed. There can only be one network.
Okay, so let's ask about the use case because we have to do this for the likes of us. What does bitcoin do for us that we can't do already with products and networks already just for us?
Which countries you live in?
Good answer?
So you know, there are many use cases for bitcoin, and I think if you look at its price correlation, so we just you know, it is liquid, that's a fact. It's price election is very very high. With tech in general, it used to be social media stocks that stood out, and what are social media stocks? They're basically people using the internet. The price of a social media stock is the sort of measure of how many people are using
the Internet. And they sort of moved on to more tech in general, and now they're sort of hanging around Navidia quite closely and the big companies in particular. So you know, it's quite obvious that what is bitcoin will it's something to do with the internet when it comes from the Internet, and it correlates highly with these things. It's part of the tech revolution. You can't cherry pick which bits of it you like in which you don't like.
You can't say, oh, I think AI is really good, and you know, having my NHS online it's really useful, and I like the taxman online. But then all I don't like bitcoin, or I don't like this or that. I mean, there are many many things on the on the on the evil on the internet. Some of them are very very evil, indeed, and others are fascinating.
It's not about liking or not liking. It's about I mean, I understand.
What you mean.
You say which country you live, and what you mean is that in unstable countries it's a great way to be able to hold and transfer wealth, right, that's what you mean. And we don't understand that because we don't have.
That problem, absolutely right, and you can cross the border and remember a few words and that's it.
Yeah, okay, what about Okay, let's look at it another way then, When we talk to people about bitcoin podcasts or anywhere, and people are very evangelical about it and treated as as you says, as an ascid that is respected everywhere now used as an acid, what would have to happen to make you no longer feel like that about bitcoin? What would have to change for you no longer feel that bitcoin was an appropriate asset for people to hold, that it.
Existed as a thing, you know, because we look at it and we said, well, what is it? There's not a thing we call it, you know, we call it a digital gold, we called gold physical bitcoin makes us.
Laugh, et cetera. But what would have to change for your bullishness on it to change?
And I don't mean your bullish is not price, I mean your bullishness on its existence. So yeah, for example, you know, is it a change in regulation?
You know, we worried for ages or bitcoiners are worried for ages that western central central banks won't allow bitcoin to exist, and that ship seems to have.
Selled a little bitter.
We wouldn't have ETFs ex But what is it that would make you not think that bitcoin would continue, but that it would fail?
So I think network exhaustion. I think everyone has got bored of it. And so far we've had lots of bull and bear cycles in bitcoin, but their bear cycles have been absolutely devastating. But it comes back bigger and stronger every time. And I think that if the liquidity started to fade, which hasn't done in past bear markets,
it really hasn't And that's been so amazing. The price has gone down, but the liquidity has always been there, and so genuinely, if people just got bored of the whole idea, which by the way, would also mean they got bored of the Internet, AI and all of that stuff too, it's quite possible then I think that that would turn me off, certainly tactically, cyclically, not sure whether it be structurally, but if you know, if the if the liquidity of bitcoin evaporated, it's worthless.
Okay, Alex Ruffer had a little little dip into the bitcoin market a while ago and sold that really quickly.
Hasn't gone back in. How do you feel about it now?
Well, look for all the structural reasons, it's interesting for a lot of people. I think generationally there's a bit of a Thermer climb between gold and crypto assets as a way to protect against sphit the basements, So never say never. The thing about bitcoin is that it's the beneficiary of the marginal liquidity in the system. In other words, how much money there is sloshing around the system makes a big difference. And if anything causes that liquidity to retreat,
bitcoin is like you go down. It's really a kind of risk on asset. Charlie talked about its correlation to tech earlier. If you put up a JAR three times bless you leveraged NASDAK, you'd find that it's basically the coin share price.
So portfolio balance is important.
We've got lots of things that give us a lot of bang for buck against the sorts of things that people say bitcoin is long term defense against.
So never say never. But we're nowhere nerves at the moment.
You got any personally, No, I don't know should we hold it.
Personally, Charlie.
I mean people who listen to the podcast.
Will know that technically I'm the owner of perfectly reagonal amount. Bitcoin is absolutely no way to access it. I think this is my code twice.
I forget the numbers. But there are a lot of people in this country do own crypto themselves, and it's been very, very popular, particularly about amongst people who are under forty years old, and they, you know, they just they're much more comfortable with the idea of a virtual digital asset than older people. And this starts with computer games where you can buy I don't know only about computer games, but I gather you can buy a sword and this has been true for years.
So I think you know nothing about computer games, how reckon, you know quite a.
Lot about I know nothing. I really do know very little. But you can buy buy swords and hats and weapons and things. And so if you've been brought up thinking that's property, then it is property. And the whole NFT revolution was pretty interesting. And I don't own an NFT, but I can understand why people would value an NFT
as the original. You know, so you own the first one with the with the hash and all the rest of it that says, this is the original picture of a of a laughing monkey or something, and and and that's fine. It is the original. And the same way that you know, you want to earn a nice piece of art, you would you wouldn't want to print or a copy. You would want the original. And so I do understand that, even though it's not something I personally get involved in. And I just think there's so many
things happening in this space. When you want to have property transferred across the Internet, Tokenization, the stable coin, think of think of AI. Imagine two big mega computers talking to each other in the early hours of Sunday morning, and they're doing some complex transactions. Are they going to use a traditional bank account? I very much doubt it. They'll be using stable coins and bitcoin.
And you've brought up thing I want to move on to by very briefly, by mentioning AI and mentioning all these kinds of things energy usage. There's a lot of talk about the amount of energy that bitcoin uses up. You know, as you say it's grids, its value is partly in the energy that it uses to be created,
and then of course it consistently uses energy. And one of the things about gold is that sure a lot of energy is used to drag it out of the ground, but then it exists effectively as a store of that energy to a degrid doesn't continue to use energy. So bigcoin is there is a user of energy in a time when we're desperately, fairly desperately trying to use less energy.
Well, we don't want to use less energy, because the advancement of mankind economically has always conciety with considering more energy.
So absolutely I entirely agree with you.
I'm simply saying that the political imperative we're being given is to use less energy.
For those political people and the next sentence, I'll say, I don't understand the productivity problem, and so you can't have a productivity revolution without more energy consumption. So you know, and it's very strange that politics doesn't seem to of course they understand it, they just don't admit it. They say something different. But back to your point. You know, the gold does consume approximately about the same amount of
energy as bitcoin today in terms of mining. You can switch off the mining and you still have lots of gold. But again we're coming back to this idea that gold's a thing, not a vibrant liquid network. If everyone has a whole bar of gold in their garden hidden underground the rose bush, you know, is that a vibrant liquid network. No, it's just a piece of metal under your rosebush. And
that is quite important point I think to understand. If you go back to nineteen ninety nine, I was saying that that was the sort of end of the gold market. It was sort of dead at that point, two hundred and fifty five dollars an ounce, and then it all turned And I think that's the fundamental gold metal value discovered in nineteen ninety nine. Now slap CPI on top of that, you get to about five hundred dollars. That's
what gold, the metal is worth. Gold the monetary network is a different thing, and it is trains at the same price.
You know, it's four talks yourself into gold.
I have an index called Bold that combines.
Both I know, and it's absolutely brilliant, and I'm going to let you talk about that very briefly in a minute. But before we get to that, I am actually going to make you choose if you had to choose one.
If you had to, what do you think I'm going to choose gold? Of course I'm gonna choose gold because the Bold index is three quarters of gold and one quarter of bitcoin, so I are going to go with the majority.
Alex, I'm afraid I will say gold as well. Preay consensus.
Okay, one minute on Bold how it works?
Yeah, more like thirty seconds.
Question.
I followed the gold market for twenty five years, and when bitcoin came along in twenty twelve, I thought, how ridiculous is that you can cut and paste it. I realized I was wrong in twenty thirty and got very excited, and over time I've been writing a lot about these things on Bytree dot com. And you know, I realized that if one was risk on, one was risk off.
Over Through my fund management career, I've come across things like vlacility, waiting and this sort of thing, and you realize that if you allocate less money to the more stable asset, the ballast in the ship and you have been a bigcoin as the spinnakers of the sales or what have, you end up with something that's pretty special. So the Bold index is a very nice way for people to own both assets, and it maintains risk and
it adds a little value. So something that's more. It's cool it has unless bigcoin becomes you know, the central the money choice of central banks and fifty years time, then the index will adjust for that.
Now that would be interesting, wouldn't it. Thank you very much for joining us, and please help me and think.
Thank you to our guest.
Thanks for listening to this week's Mary and Dogs Money. We'll be back next week in the meantime. If you like us, show rate review and subscribe wherever you listen to your podcast, and keep sending questions or comments to Marry Money at Bloomberg dot net. As ever, we are interested on your views on bitcoin and on gold. If you disagree with Charlie, if you disagree with Alec, let us know. This episode was hosted by me Maren Sunset Web.
It was produced by some Asadi, additional editing by Moses and special thanks to Charlie and to Alex