An  Investment Decision

You’ve had a great year and outperformed expectations. As a reward, your company has offered you $10,000 – but given you only two options in order to claim the bonus – invest in gold or in bitcoin.

Your firm will support whatever investment decision you make, as long as you’re able to convince both of the partners that your logic is sound.

As it happens, the partners at the firm are also a father-son team, and they have starkly different opinions on this investment decision.

Jim (now 61) and Mike (29) bring you in and ask what you have decided on for your investment. But before you can tell them your answer, the interaction quickly becomes a back and forth between father and son – you get a front-row seat.

Jim

“Mike, I know you like bitcoin, but it doesn’t matter what you say,  the biggest issues for most investors is trust, safety, and valuation. 

How crypto companies will make money – with a predictable and/or measurable consistency – is still just tough for me to grasp.”

Mike:

“But cryptocurrencies rely on similar premises to that of fiats – the confidence of the market in the currency. 

On top of that, as we see wider use cases for blockchain technologies, the most commonly used cryptocurrencies will only continue to grow in value. This will further solidify them as the new method for exchanging value.”

Jim: 

“You say that, but crypto just doesn’t have the history of something like gold – in my books, it’s a no brainer, gold is the better option.

Mike: “Yes bu-”

Jim: “- Let me school you for just a second kid. 

Even though the gold heyday of direct currency has long since past, the importance of gold and gold companies continues.

And fine, some portion of the value of gold is a theoretical hedge against inflation and protection against energy inflation, but there is still use cases in consumer goods and investment in the metal itself. 

And worst-case scenario, you just invest in shares of something like Freeport or Barrick. It’s affordable, low barrier, and based on history – you will be rewarded.”

Mike: “ I get it. But gold is just a safer option for you-”

Jim: “-Damn right i-”

MIke: “-It doesn’t mean it is the best option for everyone.

For many, safe isn’t always the play. 

You need risk in a portfolio, and if you are willing to take a  portion and invest it into the crypto world, why not? We know the industry is only going to grow. There are growing adoption rates across the globe and this is leading to a more mature market place, with greater confidence in the currencies!

Gold is ultimately based on – as you said – a pseudo protection against inflation, and to some degree, against potential fiat currency fluctuation and volatility.

Crypto can separate itself from fiat currency fluctuation. And yes, while there is volatility, these movements will become less and less as the market matures.”

Jim: 

“But gold is gold. It has a history and a physical nature to it. That is more than I can say about crypto.”

Mike: 

“Yes, but because of the nature of holding gold and the belief in lower inflation, there are fewer holdings of shares in gold companies for the average portfolio – I would be willing to say 5% at an absolute max!

On top of that, gold mining has also become much more expensive (eg. quality of grades, environmental costs, economies of scale etc…) and the returns to investors are less predictable and worthwhile compared to other options

Now, I am not saying crypto is the safest option, but it’s a part of the conversation when you are talking about diversifying a medium to high yield portfolio.”

Jim:

“But how can cryptocurrencies be stored and used? It just seems like stress for the average consumer?“

Mike: 

“Well, you can hold currency in digital wallets, purchased through exchanges. But a lot of people are finding ways into the crypto space via publicly traded companies, as it allows you to be a part of the industry, without having to deal with some of the extra complications.” – (Mike glances over at you)

Jim:

“And what about governments?”

Mike: 

“Governments around the world are legislating policies and laws surrounding the integration of blockchain and crypto into their economies.”

Jim:

“Central banks?”

Mike: 

“Banks are starting to realize they have to get on board. The UK central bank even said crypto could be the global reserve!

Jim:

“Can bitcoin be predictably cashed for fiat currency?

Mike: 

“Yes, there are exchanges all over the world, and they are easier to access than setting up a bank account. Coinsquare or Coinbase in the US and Canada are well known and respected.” 

Jim: 

“Hmm”

Mike:

At the end of the day, just understand that the crypto world is changing the financial ecosystem – there is no question. So you might as well get on board early”

Mike stands, turns, – and walking past you, lets a small smile slip, before heading down the hall.