Welcome to Shanes.
I'm Joel Webber and I'm Eric Belchernas.
Eric, Bitcoin has had a year, ETF's contributed a huge part to that. There's this other asset class though that maybe it was the original bitcoin, called.
Gold, and gold has also had a hell of a year.
Yeah, bitcoin is called digital gold. They even call it that, and it's interesting. These two camps are constantly at war, but they have a lot in common in my opinion, from my sort of objective view. They're both about storing value. They both think the government debasis currency. The one big difference is Bitcoin's very volatile. I've always called Bitcoin like teenager gold. It's because it's literally sixteen years old and gold is four thousand years old, So to me it's weird.
It's almost like gold is looking at itself as a as a little kid. So I think they should get along. But in a portfolio they play different roles because they move differently to stocks. But this year bitcoin ETFs have taken in so much money, right, and gold is up a lot but hasn't really taken in flows. So there is a bit of like bitcoin stealing gold's thunder as like the store of value or it would appear all.
Right, So to actually debate all of that, Bloomberg hosted an ETF's in Depth event here at Bloomberg Headquarters in New York on December twelfth, and we moderated a panel. On that panel with us was David Lavelle, who's the head of Global head of ETFs at Greyscale, George milling Stanley who's the chief Gold Advisor at State Street Global Advisors, and then Sime and Himan who's the global investment strategist and head of Investment Strategy Group at pro Shares, this
time on trillions the crypto versus gold debate. Today we're moderating on knife Fight, so so welcome, We're going to talk about gold versus bitcoin.
We got simeon, David and George.
So as Eric and I talked about this, we were like, how do we have you know that that part of Anchorman where the different networks go have like a street fight. We're like, let's have a street fight on stage between Golden Bitcoin.
How much you guys hate each other.
It's really we were just saying, I hope we were going to fight. You know, George and I work together for a long time and have a deep mutual respectymore, not meymore. No, I think it's a mischaracterization. There's a spot for golden bitcoin and everyone's portfolio.
I think you just made this so morning, you just mad this.
You do that at the beginning, we were supposed to work to it.
Yeah, well, well I think I think there is. But no, I have respect for both of both of these, but.
There's so many things that you do sort of probably see eye to eye on you like both hate the government. You're a hedge against inflation, you know, like distrust of everything. But then like, what what's the thing that you all? You know, really, you know, I can agree on.
Am I on the right panel here? I'm I'm not sure I recognize myself in any of that.
Okay, Well, it's been a good year. Everything has gone up, especially for crypto and gold like.
Year, yes, and p's up, bitcoins up, Gold's up and an amazing year.
I love it.
The flows for bitcoin are way bigger than gold.
How does that feel for this year? Yeah?
No, Look, I think that there are plenty of other ways of investing in gold. There aren't that many ways of investing in bitcoin. So I think that that the other ways of investing in gold have benefited, probably to the detriment of ETFs. But it's interesting to see that in the last few months we've started to see some sizable inflows coming into gold ETFs, and I think that that, to my mind, makes makes a lot of sense.
And do you view bitcoin flows this year as a goal guy as like, oh, it's just you know, shiny object, new plaything, or do you think those flows are store of value flows that are buying to hedge against currency debasement like.
Gold would I'm not sure I see bitcoin as a store of value. I think that's a question that I hope that we're going to get into. But I think that the main reason why people have been buying bitcoin is because.
They're chasing returns.
The returns have been stellar in the fifteen years that bitcoin has been around. I don't know that that's a long enough period to draw statistically significant conclusions on. I love representing an asset with a six thousand year track record, but I think that gives me a confidence that some of the things I say may make more sense.
Jump right in. Those are fighting words, Listen.
I'm just glad I'm not on a panel they have to talk about spot versus futures ets. However, I would like to let everybody know that reports of our demise are great leads aggerated. We have five billion dollars in our crypto suite. Bidoh is a two and a half, and b ITU the two x is over a billion dollars. And we even have five hundred million dollars in the mutual fund BTCFX. So there's utility there and it's important stuff.
But you know what I think about everybody says it's chasing returns in bit coin is a risk asset, and I just go back to the regional bank little mini crisis we had, and that was crypto related banks. You know that month of March almost two years ago, the S and P five hundred financial sector went down twenty percent. It bitcoin went up ten go. No, maybe it's not
a risk asset. Maybe it's a diversifier, which is I think what some of some of the folks who maybe aren't chasing so much do see it zigging when other things zagg Yeah, I.
Think it depends on the other things that zag I think one of the things that I'm a little concerned about with bitcoin, it's in its short history is that when bitcoin was launched, there didn't seem to be any relationship to the stock market. In the last few years, I think a significant correlation is developed with the stock market, and I find that concerning when the bitcoin guys, you and and Dave are out there claiming that it's.
Old guys too.
So I'm on your side, Tip.
I'm delighted to do hear it. You're very welcome on my side.
But it's interesting though, coin and gold aren't correlated.
No, that's kind of cool. We don't see a relationship at all between them, you know.
I would say that bitcoin means different things to different people, and therefore it has a different place in different investors' portfolios. And so those no, so those that are those that are seeking an opportunity to invest in something they believe is that disruptive technology can do that and can make an allocation to a spot in their portfolio that's a
risk asset. And for those that are gold bugs that really feel in the basement of currency and all sorts of other characteristics of store value, have an opportunity to make an allocation in their portfolio that might otherwise be put to place where their gold allocation is, So I think it's very early in the life of this asset.
I think when you take a look at some of the liquidity characteristics of it, and you know the general properties of ETFs, you know, democratizing the investment, validating this type of investment, you know, it's incredibly bullish.
But it's very very early, and.
So we haven't gotten to the you know, if you have dials on a on a radio, you got the big deals over here in the little dials. We're still in the big dials. Do I want to invest in this or don't I want to invest in this? And some of the debates that we're willing to have here are the smaller dial over here around you know, other characteristics.
So one of the ways to define bitcoin and the Gary Gensler and the SEC had to deal with this was is it a commodity or a security?
Dave, what would you say?
What's commodity?
Simeon?
It's a commodity, and it differs from ether because ether's got staking yield and that makes it a different animal.
George Still, I think commodities have practical uses in the world. I'm not sure that bitcoin actually does have that. It can be a fine investment if return is what you're looking for, But I'm not really sure. I tend to lean toward the Genstler view, which was that bitcoin is probably a security.
So hang on for a second. So all right, here we go, if we finally.
I don't disagree with you when you talk about the properties of bitcoin not really having usefulness when you're in a country that has a monetary policy and dollar that can be relied upon if you were to go to a country that has hyper inflation, or if you were somebody who really needed to rely upon a transfer of currency across borders with a high degree of confidence, with speed, with flexibility, with just an Internet connection, and needed to kind of move money to let's say, a family member
halfway around the world. I think you would probably say it has tremendous utility. It just in the US market. This happens to be a transformative technology where the first application of that transformative technology doesn't have a great utility here. So it would be like you know, the Internet showing up and you know email being useless to me. It just happens to be that the first practical application of bitcoin is something that doesn't have utility to you or.
Me, okay, with respect Dave as always.
Of course, yeah, the most respectful guy.
And I'm definitely going to disagree with you there. I think it's probably not helpful to your case to bring in the L. Salbator example, because the response to L. S Aalberta are basically adopting bitcoin in a very very big way, was that the IMF said, basically, you are never going to get a dollar of IMF help unless you actually abandon this stupid policy that you embraced. I'm not saying it's a stupid policy, but the IMF is somebody that I do pay attention.
To, respectfully, not saying that it can be utilized as a national currency. But if I'm sitting in Buenos Aires and you know, essentially I can get a two to one you know conversion ratio on the Argentinian pace, well, if I use actual US dollars, they need something that is going to hold its value much better. I'm not
suggesting they can utilize as a national currency. I'm just saying that despite its volatility characteristics, it is very volatile, but it doesn't devalue, and so they have something that they would rather have that volatility. But know that it's going to have and hold its value properly.
I forgot to bring the popcorn. This is like there.
You can carry gold bars around and try that.
Yeah, ask your alternative the aluminum SAMSONI briefcase. It's like very.
I've almost told you that I want to ask prisoner like Trump is indicated that there could be something resembling a bitcoin stockpile. George, do we put that right next to Fort Knox or or is there another place that it goes?
It's much easier to store.
Is there an it that you need to put somewhere?
I mean, isn't this all up in the air, George, George, George, come on twenty years and for like the past fifteen years, people are saying, is there gold in the ball? For GLD and g LDM. We have pitches of you in the vall. We know there's gold in the ball. It's a thirty three Act dellow grant tor trusts exchange trader product that holds the bitcoin.
An argument I've set us because we're a forty act fund and in case you can't use a grant or trust, then you should know that b it t O BIDDO is indeed a forty act fund.
I don't worry. Is that the weirdest knife fight I've ever been to. It's very cerebral nerds knife fighting. Okay, leave back to this.
I think what George is saying is that not we don't know if the bitcoin's there, and I know you guys, you have something in common there.
The hardcore people question that.
I think he's saying it isn't even a thing, so why on earth could it be a reserve?
Right?
Look, I'm not saying that it's a bad idea. I think the problem is a lot of people have taken what the President elect said out of context completely, not for the first time in his case. A lot of people have suggested that maybe he's planning to sell some of our gold reserve out of Fort Knox and replace it with bitcoin. He never said that. I hope he never does. I don't think that would be a good idea.
But if he thinks it's a good idea to just stockpile some bitcoins, I'm certainly not going to be the person to argue with him.
There's more analogous stuff here than there are differences, I think, which is going back to how you started and sort of front ran it.
Gold is the thing that I really have time out.
I didn't front run anything.
I don't.
Perhaps it suggested a unifying his lawyers here at the front end of our conversation. But gold is the thing that doesn't have the industrial use for the most part. It's not copper, it's not so it's a store of value. It happens to have a physical thing. And if you went through the financial crisis, then you were wondering, did you have your own bar of gold? Did it have your initials on it? And all that crazy stuff. But
it's around for a long time. And one of the ways that you can see how well functioning gold is is if you look at the gold futures market and you've got the Bloomberg Index, the Gold sub index. If you look at it just a little in the weeds. You can look at the regular one, but look at the one that says t r on it your on your terminal. That's the fully collateralized guy and it and that means you hold cash with your futures track spot
absolutely spot on. What does that mean? Gold is the future of bitcoin?
Like they are?
They are so similar. I would argue they're much more similar than you than you guys are suggesting. But what is cool right now is that they really aren't correlating. Bitcoin's got a point three correlation to the stock market, something like point two to bonds and point one to gold. That seems to me kind of a useful thing in a portfolio.
Yeah, point three correlation the stock market would worry me. Goals correlation to the stock Markey's point zero three. In other words, statistically nothing correlation with the bond market is bigger. It's point zero nine. Statistically that's still zero. That's what I like about Gold's a lack of correlation with the assets that you'd find in a typical portfolio. Bitcoin, I'm afraid, does correlate a bit more so, I don't think it's
offering you the same kind of protections. And I think the first reason why people turn to gold as an investment is because of its protective capabilities. It's a good diversifier in a portfolio. It has a long track record of offering some protection against sustained high inflation. Not sudden moves in the rate of inflation, but sustained high inflation. It's got a good track record is offering some protection
against a sudden downturn in the equity market. Think of Black Monday in nineteen eighty seven, dot Com bubble bursting in two thousand, think of the global financial crisis two thousand and eight, COVID in twenty twenty, plenty of examples. It also has a good long historical track record offering some protection against currency depreciation. So all of those things put together, I think that that's the principal reason why
people turn to gold. Now, sometimes God will and offer you not just protection, but it will offer you protection plus performance. And in my defense here I would cite twenty twenty four when the goal price is up thirty three percent year to date. I think protection plus performance is a very very powerful mantra, and I don't think the bitcoin cur actually matched that mantra right now.
I think protection plus performance is actually exactly what bitcoin would would provide you. And I would say that all those characters you talked about, inflation, protection, currency debase, and protection, all those things are properties that bitcoin actually does. In the case of inflation, I think the inflation properties of bitcoin is half of that of gold. You know, doing a better job of protecting against inflation. And I think that you know there.
Any evidence for this thing my research. That's su your thing.
One percent versus two percent is what I've got for my research team. But we should have to talk about that more.
I guess when I say inflation, I did stress sustained high inflation. Gold comes into its own when we have inflation for more than two years at more than five percent a year. We didn't have that in the most recent round of inflation. Gold was going up for different reasons. It wasn't chasing inflation.
So let's take two If two year is a time prime, two years, minimum two years, So let's take a look at the return profile of a minimum two years against gold against bitcoin. I don't think you're going to find a.
Two year period.
I haven't looked at this, but I suspect you're not going to take a two year period where you have gold that's out before.
In bitcoin.
I'm happy to accept with respect that that bitcoin does in fact demonstrate superior returns to go in the short life that it's had provided. Of course, we leave out twenty twenty two, which nobody really wants to talk.
Two year period the on the bitcoin, we've gotten a couple of bad years, don't get me wrong eight the past eleven has been number one performance.
Like somebody said about the Chicago Cubs. Any team can have a bad centure.
Okay, and Eric and I asked a question.
No, I'm so glad there wasn't you're carrying a knife joke?
Probably let's check them.
Okay, So let's talk a little bit about, uh, this idea of putting this stuff into an ETF.
You know, oh yeah.
What I found is when I tweet about bitcoin, there are definitely people who come in and go, oh, this is like against the whole idea. You're centralizing something that's supposed to be decentralized. And the same with gold. Okay, I think that there's going to be like real like apocalyptic scenes out there. Society is going to collapse. I want gold in my basement and a lot of bitcoin people.
I will call these the extreme types. The ETF defeats all that purpose in that the government could just tell, you know, confiscate it. I guess my point is how much.
Is by the way, Yes, that's right.
Well there's one Goldie TF that keeps it in Switzerland, which is like next level.
But what about this idea of.
Is an ETF against the spiritual foundation of both of Europe.
So I think we are going to be really really lying. So that this guy was in the room when it happened twenty years ago, I have me in the room when it happened when Bitcoin spot products came to market, and I think there were naysayers, and we've talked about this. Naysayers. The gold bugs were like, this is insane, and there are lots of naysayers and the bitcoin market saying this
is also insane. But what the gold bugs and the bitcoin has really loved is that as a result of this democratization asset and putting it in this wrapper, that the price performance as a result of it, because of that democratization, was incredibly bullish.
And I think that they would both agree.
They wouldn't want to admit that it helped, but I think the reality is that it did.
I don't think anybody made that sort of complain when we launched gold twenty years ago. I think most people were very happy that what we had done, in the words of Bob Pisani if I mentioned his name in these Allied precincts, we had taken the friction out of investing in gold.
That was what Bob.
Pisani said, we democratized it this same way that the launch of spot bitcoin ETFs, I think helped to democratize that. It was an advance on what you guys have. Let me put it that way.
You don't need to be using the utility of the underlying investment for the ETF to be meaningful. I don't drive a tractor, but I might want to invest in John Deere. Like the fact that it has an important use. And we're having a little debate here, but if for those of us who believe that there's an underlying use for the blockchain for bitcoin as a store value, remember it's got fixed supply and all that stuff. Whether you're going to use it in an apocalypse, it doesn't matter
to me as an investor. There's lots of things you own that you don't need the underlying utility for. So I think that's almost a diversion from what most of us are thinking about as to what will it do in my portfolio.
I think you're blending blockchain and bitcoin. I still think of them very much as separate entities, and you guys know.
Much more than anything I do about this.
I think that blockchain technology has never been hacked. Unlike various exchanges that have traded cryptocurrencies, or unlike various wallets that previously contained cryptocurrencies, the blockchain has never been hacked, and I think that that is an incredibly important contribution to society. I think that blockchain is a solution, and I think what it's looking for as a problem. I'm not sure that a currency is actually the problem that blockchain can resolve. I think there's a lot of other
things that blockchain can do too. I'm looking at investing in companies that are going to gain from grow growing use of the blockchain, rather than me looking directly to invest in bitcoin.
Well, but that's not dissimilar to wanting to own oil and an oil company. They're both very important in valid, valid investments. So I don't think it's in either or in this case one hundred percent. There are tremendous opportunities in companies that are leveraging the blockchain, but there are also opportunities to simply own coin as well.
But different people want to invest in different things in different ways. You're going to want want people who are going to want own gold and keep it in the vault. There are people that don't want to use a financial product. There's people that don't want to own, you know, mining companies or you know, those that are actually using gold in their in their you know, for commercial uses. The same as also the case for for bickcoin.
So you raised the specter of armageddon. I think I think we ought to tackle this one a little bit. I happen to be an old fashioned guy. I believe that there will always be a New York Stock Exchange where I can trade my g l D or a
successor body. I believe there will always be a vault at the Bank of HSBC in London, or a successor vault where we're going to store g l D. And if somebody is going to come through that door with the machete between his teeth and evil in his heart, the metal that I'm going to I'm not going to try to beat him to death with a gold bar. The metal I'm going to want is lead in cased in brass, and something to project it with significant volatile velocity toward my assailant.
George, I'll bet on running away.
And if you've got one hundred thousand in gold, I'm gonna beat you with one hundred thousand in middle.
You don't have to be able to beat you say that, you just have to be able to.
Beat me, and I think you welly quickly.
And then my next appointment is is my car theologist?
All right, we've done so many places.
Yeah, okay, I want to talk about allocation, right because black Rock put out a report today saying that they recommend one to two percent allocation if you're going to do it. They said they get a lot of incoming about ibit, and so they just said put it out there to stop all the phone calls. But the Bitcoin people I can see on my Twitter mentions are like one that two percent. It's like Zoolander, what's this bitcoin for ants? You know a lot of these people are
all in. They think the stocks in the bond market are the scam. I've also heard with gold. You know, one or two percent isn't enough to really do much.
So here's my question about.
The medical difference to the performance of a portfolio. She's the only way to judge any.
Say, I'm a Iowa based advisor, I'm you know, middle of the road. I come to each of you and I say I'm interested in your goal or bitcoin? What percent should it be of my portfolio?
Start with George.
Okay.
The literature suggests that any portfolio can benefit from a long term strategic allocation somewhere between two and ten percent, and if you are experiencing or anticipating a period of exceptional volatility in the markets in general, then you can double your allocation two to twenty percent. That's not very helpful, but every financial advisor is now legally required to know his or her customer and they can help to figure out where on that two to twenty percent spectrum an
individual exists. Because people have different tolerance for risk, people have different needs for liquidity. There are all kinds of different needs that investors have, and it's up to the financial advisor to know the customer and to know where they fit on that two to twenty percent.
Spect Can bitcoin co exist in that relationship?
I think bitcoin can co exist in that relationship. The one thing I would say is that if you are going to chase returns by by adding bitcoin to your portfolio, because I think that's really what people are doing paramount, then recognize that you're increasing the overall volatility of your portfolio.
So look at your risk off, look at your hedges against portfolio volatility, light gold and give due consideration to maybe upping the gold content at the same time that you're adding bitcoin to the portfolio.
That's pretty it can coexist.
So gold is a hedge for your bitcoin, I think a good one. I think that's pretty good.
You should run with that's that's pretty and that is a great roll for the bitcoin craft.
I was all go nuts.
I wasn't just willing to go last risk is that's a return five percent? Obviously volatility characteriss but but you know, using sharp ratio sixty forty portfolio, five percent of bitcoin is what our research team recommends.
Yeah.
I think the important thing that we all agree on, and the facts are clear, is that bitcoin is more volatile than gold.
Number two.
Both of them have not so much correlation with stocks and bonds. We can quibble about that, but certainly lower than even like emerging markets or things like that. Oh yeah, So mathematically the thing that's the most volatile. You only need a little bit in a portfolio to increase portfolio efficiency. So it's easy to defend one or two percent for bitcoin. And yes, because gold is less volatile for it to do anything to contribute its diversification benefit, you'd need a little more.
You know, it made me He's doing my job.
So do we have both funds? We're good. We got called.
I was worried that you could if you could co exist on a stage together. Now I know that you can co exist in a portfolio.
So this is good.
Uh.
I want to ask about President Trump again, and here we are heading into a new administration, many many, many changes. What changes are happening at your company? Mean, go ahead, what changes are happening?
How are you preparing?
For the most part, we're just writing our market outlook and thinking about what the best solutions are. We're all in the same boat together, where we're looking at the equity markets and seeing what the impact might be from expansionary physical policy, what tariffs might do. We're looking for what the impact of regulation is like interesting conundrums like well, if there's less regulation and energy, but if it's drill, baby, drill,
How do I figure things like that out? I think for almost any policy opportunity there is, there are two sides of it. So even if you knew exactly what the policy outcome was going to be, the impact is still ambiguous. And that's the challenge of twenty twenty five.
So we're a firm grey Sales of firms, one hundred percent focused on crypto. We're the largest crypto asset manager in the world. The Trump administration is seemingly going to be more favorable towards crypto and that's the way the market is reading it. So we're going to continue to be innovating and launching more products in the form of
single asset products. We're also going to be doing some index based things, and we're going to figure out how we push down the cap spectrum to bring exposures to clients for what they want. We tried to file for a Salona etf the SEC didn't seem ready for that. We have five out for we assume.
Them, right, that's what happens.
Well, there's a little due process there. Yeah, we accepted that for now. But you know, our GDLC product is a product that we have filed that is in the turner in forty day kind of waiting period. That's a product that has you know, five assets inside of it and we think has a good chance for a rule.
I've watched a lot of elections since I moved to this country. Nearly forty years ago, and I've seen an awful lot of election promises, and I've seen an awful lot of election promises that were broken the moment somebody actually became president. I have no idea what the next administration is going to do. I don't think that anybody
really has a clear idea at all. Is there our tariffs a threat that might offer leverage in terms of negotiations, or are they something that has already been decided on? For example, I think that what State Street is doing is essentially what all of our clients are doing. We are we're in wait and see mode, because I don't think any of us know what's going to start happening on January the twentyeth.
All right, that concludes this episode of Trillions.
George David Simeon, thank you so much for joining us.
Left We'll get.
Thanks Thanks for listening to Trillions until next time. You can find us on the Bloomberg Terminal, Bloomberg dot com, Apple Podcasts, Spotify, or wherever else you'd like to listen. We'd love to hear from you. We're on Twitter. I'm at Joel Webber Show. He's at Eric Balchunas. This episode of Trillions was produced by Magnus Hendrickson Bye