Gold vs. Bitcoin: Goldman Sachs Weighs In

Authored by James Rickards via The Daily Reckoning,

I write and speak a lot on gold. In contrast - and this surprises some people - bitcoin is my least favorite topic. I’m made my views known many times.

Still, interviewers love to get into the “gold versus bitcoin” debate. I continually get dragged into discussing bitcoin in interviews on TV, radio and the internet. So I discuss it whether I want to or not.

From my perspective, you might as well discuss gold versus watermelons or bicycles versus bitcoin. In other words, it’s a phony debate. I agree that gold and bitcoin are both forms of money, but they go their own ways.

There’s no natural relationship between the two (what traders call a “basis”).

The gold/bitcoin basis trade does not exist. But people love to discuss it, and I guess Goldman Sachs is no different.

Goldman Sachs has released a new research report that comes down squarely on the side of gold as a reliable store of wealth rather than bitcoin, which is untested in market turndowns.

Precious metals like gold are “neither a historic accident or a relic,” said the report.

It affirmed that gold is more durable than cryptocurrencies because cryptocurrencies are vulnerable to hacking, government regulation and infrastructure failure during a crisis.

Goldman also reminds us that gold holds its purchasing better than cryptocurrencies and has much less volatility. In dollar terms, bitcoin has had seven times the volatility of gold this year.

Since Goldman’s research department has not been notable as a friend to gold, the fact that they favor gold over bitcoin is highly revealing in more ways than one.

I don’t deny that bitcoin has made some people multimillionaires, but I also believe it’s a massive bubble right now.

I don’t own any bitcoin and I don’t recommend it. My reasons have to do with bubble dynamics, potential for fraud and the prospect of government intrusion.

So bitcoin evangelists seem to think I’m a technophobe. But I’ve read many bitcoin and blockchain technical papers. I “get it” when it comes to the technology.

I even worked with a team of experts and military commanders at U.S. Special Operations Command (USSOCOM) to find ways to interdict and disrupt ISIS’ use of cryptocurrencies to fund their terrorist activities.

I will say, however, that I believe in the power of the technology platforms on which the cryptocurrencies are based. These are usually called the “blockchain,” but a more descriptive term now in wide use is “distributed ledger technology,” or DLT.

So although I am a bitcoin skeptic, I believe there is a great future for the blockchain technology behind them.

I’m not telling anyone not to own cryptocurrencies, but you need to do your homework before you do.

"Bitcoin Jesus" Says Another Network Split Is Coming In November

Since its current world-beating bull run began in late 2015, bitcoin has surmounted a series of pitfalls that were supposed to kill the market.  The list is remarkably long. The DAO hack. The PBOC crackdown. The ICO craze. The SEC’s rejection in March of two proposed bitcoin ETFs. And, most recently, the network split that spawned bitcoin cash. All were supposed to burst the roaring valuation bubble, yet in almost every example, a temporary pullback was followed by another leg higher.

Considering that it was the culmination of three years of acrimonious infighting among bitcoin core devs and the miners, the August split – particularly the market reaction – was surprisingly cavalier. Now, the faith of bitcoin investors is being tested once again as key players in the market are warning that another network split could create a third version of bitcoin as soon as November.

According to Bloomberg, bitcoin evangelist Roger Ver, better known as “Bitcoin Jesus,” said that some of the miners who supported the controversial software upgrade that triggered the split in August have withdrawn their support just as bitcoin core developers are preparing to implement the second step of the update. This could create a rift between what Ver calls “legacy bitcoin” and “the SegWit2x version of bitcoin.”

“There’s probably going to be another split between bitcoin legacy and SegWit2X version of bitcoin but that just gives me more coins that I can sell for the Bitcoin Cash version,” Ver said in an interview on Bloomberg Television at a conference organized by Bitkan in Hong Kong.

Ver was an early adopter of bitcoin. Since the split, he’s been a vocal supporter of bitcoin cash. Ver, who was born in the US but renounced his citizenship and is currently a citizen of Saint Kitts and Nevis, has also been denied visas to travel back to the states in the past. Of course, Ver has been badly wrong before. Back in the summer of 2013, he traveled to Tokyo to visit Mt. Gox shortly after customers started having issues withdrawing their funds, which the exchange attributed to unspecified "liquidity problems." Ver attested that Mt Gox CEO Mark Karpeles had shown him bank statements proving that the exchange"s troubles were a result of being temporarily shut out of the traditional banking system, and that customers" assets were safe. Of course, this excuse was merely a ruse for a massive hack that resulted in the theft of tens of thousands of customer bitcoins.

To be sure, Ver isn’t alone in warning about another potential split. Samson Mow, chief strategy officer at blockchain startup Blockstream, also says a rift is likely as more miners and developers reject the pending upgrade to SegWit2X.

“Many developers, users, miners, and businesses have already stated they do not agree with the pointless 2x fork, so we’ll likely end up with three chains,” said Samson Mow, chief strategy officer at Blockstream, which has close associations with Core developers. “Long-term, only the main bitcoin chain which has the support of users and developers can survive.”

Bloomberg summarizes the circumstances that could lead to another split below:

“If another tear occurs in November, it would create a third version of the cryptocurrency and potentially further scatter capital and resources as three offshoots of bitcoin emerge.

SegWit2x refers to a compromise proposal developed to deal with the surge in transactions. In August, miners agreed to implement the first phase of the proposal, or SegWit. They were expected to increase the blocksize to two megabytes around November in a second phase.

Avoiding such a splinter requires miners to reach at least 92-percent consensus on supporting the second phase of SegWit2x, but that’s becoming increasingly unlikely, according to Wang Chun, co-owner and chief administrator of F2Pool, one of the world’s largest mining pools.

Even though SegWit2x garnered more than 93 percent support in July, miners and developers seem to be backing away from the proposal, a compromise that harbors characteristics disliked by extremists on both sides. Wang said he thinks the split will “happen, 100 percent.”

Many Core developers agree. Several have said they’d prefer to focus on writing code in the future for only the SegWit chain: currently the largest version of bitcoin at about $64 billion in market value.”

So, would the creation of a third iteration of bitcoin (and, we presume, the spontaneous generation of billions of dollars’ in “value”) be enough to trigger the great crash that naysayers like J.P. Morgan Chase & CO CEO Jamie Dimon and Bridgewater Associates founder Ray Dalio have warned is coming?

What say you?
 

Bitcoin's "Day Of Reckoning" Has Arrived: Traders Welcome "Bitcoin Cash" As Network Splits

After a brief delay, the first bitcoin cash blocks have been mined and trading in the new cryptocurrency has begun - albiet at a sizable discount to bitcoin.

#BitcoinCash trading on OKEx at 0.065 BCC / BTC. Trade here https://t.co/7G6sNMENIx $BCC $BTC pic.twitter.com/wpMIIl2RBM

— OKEx (@OKEx_) August 1, 2017

BCC token are trading at 0.097 bitcoin, about $261, on Chinese exchange OKCoin.

#BitcoinCash trading at 0.097 BCC / BTC on 11K+ volume already!!!. Trade here https://t.co/7G6sNMENIx … $BCC $BTC pic.twitter.com/vGG2P4cx9L

— OKEx (@OKEx_) August 1, 2017

By comparison, bitcoin is trading at $2,700, and ethereum at $219, according to CoinMarketCap.

* * *

After more than two years of internecine struggles over how to expand bitcoin’s ability to quickly process transactions, the long-feared bitcoin "day of reckoning" has arrived. The bitcoin network has split into two separate blockchains, causing the creation of a new cryptocurrency twin to the original bitcoin.

In the meantime, the collapse that some bitcoin doomsayers envisioned has so far yet to materialize; the original cryptocurrency was off 3% in recent trade, while most of its peers were higher on the day.

After announcing Saturday that they would go ahead with the fork, bitcoin miners running the alternative bitcoin software will soon begin producing the new coin, known as bitcoin cash. Bitcoin cash raises the limit of how much data can be stored in a single “block” on the bitcoin blockchain, which proponents say will help increase transaction speeds while tamping down rising transaction costs.
Though no blocks of bitcoin cash have yet been mined, Kraken, one of the most popular US exchanges, has added it to its interface.

Bitcoin cash trading live on Kraken, though none yet exists. So fascinating to watch.

— Josh Forman (@joshuajforman) August 1, 2017

Other exchanges are still figuring out how they will handle cash, according to CNBC.

"Coinbase said it will not support the new bitcoin cash. The firm operates the GDAX exchange, which said in an email alert it has temporarily disabled bitcoin withdrawals and deposits Tuesday "in preparation for the upcoming fork."

Bitfinex, which has nearly a third of U.S.-dollar bitcoin trade volume, tweeted Tuesday morning that "We will stop processing $BTC deposits at noon UTC until the situation has settled. Deposits after that time will not be eligible for $BCH."

As of press time, bitcoin cash miners were still waiting for the first new coin to be processed, according to CoinDesk.

According to Btcforkmonitor.info, the bitcoin blockchain has produced 478562 blocks, compared to 478,558 for the alternative Bitcoin Cash blockchain.

At press time, miners dedicating computing power to that blockchain were still looking for their first block, an event that would mark the formal creation of its cryptocurrency.

Bitcoin cash is supported by a minority of miners and developers who objected to a feature of the more popular Segwit2x update that would’ve improved the digital currency’s scalability by routing more transaction data over peripheral networks, thereby taking pressure off the main blockchain. Segwit2x will also increase the bitcoin blockchain’s block size to 2 megabytes. According to Shapeshift CEO Erik Vorhees, the only major mining pools that support cash are ViaBTC and Bitcoin.com.

#bitcoinCash has not forked but behind other nodes #bitcoin pic.twitter.com/p5CC0mk86B

— Crypto Trading (@TradingCrypto) August 1, 2017

Segwit2x has the support of most of the community’s miners. Data from blockchain.info show that 90% of the network’s mining power is signaling support for Segwit2x, higher than the 80% threshold needed to make the software update official.

If recent moves are any indication, Tuesday will be a wild day in cryptocurrency markets as investors wait to see how the market will react to bitcoin cash. Ethereum endured a similar network split last summer that created Ethereum Classic, a separate token that’s seen its price plunge as investors favored the original Ethereum token over its newly created peer. Now investors are wondering: Will a similar dynamic play out with bitcoin and bitcoin cash?