Gold Carries Almost No Monetary Premium Right Now
There is not much monetary premium in gold today, because very few people, if anyone, actually use it as money. The premium that exists comes almost entirely from central banks holding it as a reserve asset, and that demand has been growing recently. Historically, though, central banks keep a very low percentage of their reserves in gold. They hold too much fiat on their balance sheets and are underinvested in the metal. For that reason I expect central bank demand for gold as a reserve to rise rather than fall.
Private investment demand tells the same story. Gold held in private hands as an investment sits at a historically low level right now. That leaves room for more buying from institutions and individuals, and gold may end up remonetized. More demand for investment gold from both groups pushes in one direction.
The Campaign to Discredit Gold
There has been a lot of negative campaigning against gold, and it serves a purpose. To promote Bitcoin, the marketing spin has been to denigrate gold and dwell on its supposed problems. The claims run like this: gold is not really scarce, nobody knows how much exists, there are gold asteroids out there, and you can never be sure a bar is real because it is so easy to fake. All of that circulates because gold has to be trashed for the competing narrative to work. That campaign has taken a toll on potential buyers who never came to see the real value.
I hear people say gold is useless, that it is all perception, that people only think it has value. That description fits Bitcoin exactly. It does not fit gold. People assume gold has no use even while wearing gold jewelry and carrying gold inside their consumer electronics. Everyone already has gold and uses gold in their lives, yet they fail to register how much value it holds. Gold has properties unique to it that other metals do not share, and there are circumstances where you need gold and cannot substitute anything else.
Why the Store-of-Value Cannot Be Stripped Out
Suppose gold lost its monetary role entirely and served only electronic or industrial purposes. Would its value collapse to a fraction of the current price? It is hard to say what gold would be worth if nobody wanted to use it as a store of value, because that store of value is nearly impossible to strip away. Gold is objectively a store of value by the definition of its own properties. It is eternal. It does not decay, it does not rot, nothing happens to it.
You can also reuse it. Once you have used gold, you can melt it down and start over. Compare that with other commodities. Buy wheat, eat it, and it is gone; you cannot eat the same wheat twice. Burn gas and you cannot reuse it. Gold you can use over and over and over again, and it never loses its value. Buy a new computer and in a few years it is obsolete because a better one exists, so the one you bought loses value. There is no better gold coming that will make your gold obsolete.
That permanence is the competitive advantage, and it is why comparing gold with consumable commodities is a flawed exercise. The gold you own today can be used a thousand years from now by someone else. Gold represents the present value of an eternity of use cases. You hold it in your hand, and there are not many things you own that will still be valuable in a hundred years, let alone a thousand. Find a ship that sank six hundred years ago and the only thing likely to hold value is the gold aboard. Everything else has disintegrated into the sea.
Tokenization Could Remonetize Gold
One of the ironies of the current moment is that the move to remonetize gold could come from tokenization and blockchain. You can tokenize gold the same way people tokenize the dollar. The stablecoin crowd argues for putting dollars on the blockchain because it is more efficient than a checking account or a bank wire. You gain even more efficiency when you tokenize gold, because once tokenized, gold becomes the perfect medium of exchange. It is very easy to buy, sell, and settle in gold.
The mechanics are simple. I do not have to send you my gold, hand it to you physically, put it in a box, or ship it. I transfer ownership of the token instantly, and the gold that was mine is now yours. The bar sitting in a vault in Switzerland that belonged to me now belongs to you. Rather than losing its monetary premium, gold is more likely to gain the monetary premium it does not really have right now. Technology may end up strengthening gold instead of replacing it, despite years of claims to the opposite. Markets tend to underestimate innovations that reinforce an existing asset rather than disrupt it.
Gold Bonds and the Question of Reserves
On the idea of a government gold bond, such as Judy Shelton's proposal for one issued on the Fourth of July, I do not think it will float. The United States is not going to start issuing gold bonds, not if it does not have to, because doing so is an admission that amounts to surrender. The arithmetic is real: bonds redeemable in gold would carry a better interest rate than dollar bonds, but the obligations would keep growing, since the government would have to go buy the gold if it does not already hold it. A country could pledge its gold reserves, but then it would probably need an audit so that people know the gold is actually there. That transparency question is exactly why gold-backed bonds make governments uncomfortable.
Bitcoin Stole Gold's Thunder, and That May Reverse
Bitcoin has overshadowed gold and stolen some of its thunder. People have been buying Bitcoin instead of gold. Many, though, bought neither. One reason they skipped gold is that they assumed gold would lose out to Bitcoin, so they went looking for some other inflation hedge and often never found one. Once the myth that Bitcoin is digital gold dies, that is good for actual gold.
Consider the price action. In a recent stretch Bitcoin fell from around 90,000 to around 58,000. Some Bitcoin holders were damaged enough by that drop to stop trusting digital gold, and as a byproduct some of them may distrust real gold too, having been fed the story that the two are the same thing. When the digital gold narrative weakens, the hidden opportunity is that investors who were diverted from owning any hard asset at all may finally come back to the real one. Capital follows durable conviction rather than clever branding, and that distinction matters most when uncertainty rises.
Why Strategy Is the Biggest Problem in Crypto
Strategy, formerly known as MicroStrategy, has always struck me as the biggest bullshitter in crypto. The man running it is intelligent, and if you just listen to him talk about sophisticated concepts it can sound like he knows what he is talking about. Beneath the big words is nonsense. That was especially true once he got into Bitcoin credit and the notion that he was creating credit, which is absurd. He calls Bitcoin the most valuable property in the world and compares owning it to owning Manhattan real estate, claiming it will appreciate the same way. He misses what gives Manhattan real estate its value: the high rents you can charge when you own it. You get paid nothing for owning Bitcoin. Someone joked the company should have been called Micro instead of Strategy, and the joke lands.
The real line got crossed with the borrowing and the preferred stocks, and in my view that tipped into outright fraud, because he marketed highly risky products as if they were bank accounts. He described the product called Stretch as a bank account with no worries and no volatility that pays a 10% yield. Anyone who bought it a month earlier had already lost 20% to 25% of their principal. A lot of people are going to sue him because they listened and lost money.
Calling this a business is generous. A Bitcoin treasury company is not a business. You cannot run a business where all you do is buy Bitcoin, because anybody can buy Bitcoin; you do not need Strategy to do it for you. The only reason it ever looked like a business is that people were foolish enough to overpay for the stock. The shares traded at 150%, double what the underlying Bitcoin was worth. So the actual business was selling overpriced stock and using the proceeds to buy Bitcoin. Now the stock is worth less than the Bitcoin it holds, and that business is finished. You cannot sell a dollar of stock, buy Bitcoin with it, and end up holding less Bitcoin than you started with.
The Death Spiral
He has run out of idiots willing to overpay for his stock, so he resorted to promising people high returns if they handed him money to buy Bitcoin. People now realize those returns are unsustainable. He raised the dividend on Stretch to 12% the day before, yet the market yield sits at 15%, because the price keeps falling. Investors do not believe he can pay, since he has no operating business and generates no income. He just has a pile of Bitcoin, and that pile is not worth much if he has to sell it.
Bitcoin is close to 60,000 largely because Strategy spent 60 billion dollars buying it. Without those purchases the price would be nowhere near here. A lot of other money flowed into Bitcoin because of Strategy, since a big buyer showing up every week gave people the confidence to buy alongside him, as if he were protecting them. Once he is out of the market, the situation gets worse, because Strategy has to sell Bitcoin to raise cash for its reserve and to pay the interest and dividends on its debt and preferred stock.
To buy back the stock and the preferreds he has to sell Bitcoin at a big loss relative to what he paid. He buys the preferreds back for less than he sold them, so he recovers some of it, but the overall result is a huge negative. Meanwhile the selling puts downward pressure on Bitcoin, which puts downward pressure on Strategy shares, and the loop feeds itself. The lower Bitcoin goes, the more he has to sell to raise the money he needs, which pushes the price lower still, which pushes the yield on Stretch higher, which forces him to sell even more Bitcoin to pay that yield. It is a death spiral. Once financing depends on falling collateral, the negative feedback loop becomes very hard to escape without permanent destruction of capital.
For over a year my advice has been the same. Even if you love Bitcoin and believe it is the new gold, and I do not, get out of it now and do not buy it back until Strategy is out of business. Wait until he is bankrupt, wait until all that Bitcoin has been sold into the market, and only then buy, because until that happens you have a massive seller hanging over the market.
The Numbers Do Not Support the Story
Strategy is down about 50%. Since October of last year, roughly eight months, Bitcoin has fallen 53%. During that same window Strategy bought 17 billion dollars of Bitcoin and the price still fell. If the price could not rise while he was buying, what happens now that he is selling? Bitcoin today is lower than it was in April 2021, more than five years ago, when it traded at 64,000. It is barely 59,000 now. If it could not go up while Strategy poured in 60 billion dollars, there is no obvious source of new buying to lift it.
I keep asking Bitcoiners who is going to replace Strategy. A crowd of other Bitcoin treasury companies formed specifically to ride on his coattails, and they have already bought their Bitcoin. No more of these companies will be created now that the poster boy turned into a complete disaster. Many of the existing ones will watch their share prices fall to steep discounts, and they will come under pressure to start selling their own Bitcoin. Demand manufactured by leveraged treasury companies looks temporary rather than organic, and the honest task for a long-term investor is to separate genuine adoption from financial engineering before committing fresh money.
