Cryptocurrency Kiosks Ahead of Eagerly Awaited ETF Decision
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By Merryn Somerset Webb
November 15, 2024 at 10:30 PM PST

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Hi, I’m Merryn Somerset Webb, Bloomberg UK Wealth’s editor-at-large. Welcome to the first Merryn Talks Money newsletter. Every Saturday, I’ll bring you micro to macro thoughts on your money and investments. I welcome your feedback.

On the Merryn Talks Money podcast, we always end our chats with the same question: “Bitcoin or gold?” There are a few parameters—our guests have to choose one and must assume they’ll hold it for at least 10 years. Otherwise, it isn’t in any way a trick question. And so far at least, it’s turned out to have no wrong answer.

Anyone would have been thrilled to hold gold of late (see above). A report just out from Deutsche Bank shows that, in the first 25 years of the third millennium of the Common Era, gold has been the best performing mainstream asset there is.

And what about Bitcoin? You also would have been happy to have it for the past quarter century. Back in 2000, it didn’t exist. Today, it’s hovering around $90,000 (the chart below shows it trumps all other “Trump trades”).

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Anyone who has held it in any volume for even the last few years is rich—assuming of course they can find it (Bitcoin mostly comes without a customer service hotline, and around 20% of the total supply may be lost forever).

If you’ve been following the crypto markets at all (or if you listened to our post-election podcast with Helen Thomas and Pippa Malmgren) this will all make sense. Donald Trump says he loves crypto: he promises to stop government sales of seized digital assets (arguably a bad idea), encourage more crypto mining and maybe even make Bitcoin a reserve asset.

The Republican president-elect also says he’s planning to fire crypto-skeptic regulators (goodbye Securities and Exchange Commission Chair Gary Gensler) and push Congress for a new crypto-friendly regulatory environment, something that may bring in new institutional and retail investors.

So what’s not to like? Crypto is on the up—the market’s total capitalization just hit a new record high ($3.1 trillion according to Deutsche Bank). But this isn’t only about Trump. Crypto is quite sensitive to monetary policy (rates down, Bitcoin up) and if nothing else is a momentum trade. It goes up when everything else goes up—as almost everything did when Trump defeated Vice President Kamala Harris.

How far will it go? Nobody knows, since there’s no real way to value it. But there’s a hint for bulls in the size of the gold market. Those who are convinced Bitcoin isn’t just a long-term store of value, but the best long-term store of value, reckon it should have a market capitalization similar to gold (it’s already passed silver). If true, there’s much more money to be made—and by many more people.

But none of this is a given. Over the last few years, guests on my podcast have noted they aren’t mad for most crypto coins, but that Bitcoin is different. They say it’s the one that will make it. But we still aren’t 100% convinced of that—not with Trump soon in charge of America.

Russell Napier, the economic historian and founder of Edinburgh’s Library of Mistakes, is a regular on Merryn Talks Money. He makes what may be an obvious point: Trump is a nationalist and “will seek to use national savings for the national good.” But carry that thought over to Bitcoin, the whole point of which is global and friction-free reach. It is, says Napier, explicitly designed to “be a portal that allows savers to avoid measures that push savings towards funding national investments.”

Stable coins, the boring younger siblings of booming Bitcoin, are the opposite: they’re mostly backed by short-term US Treasuries and as such are becoming an important store of value for foreigners without easy access to dollar accounts. Moreover, they actually work as transaction currencies.

The key is this: stable coins attract funds to the dollar (and by extension the US government); Bitcoin, with its self-custody possibilities and built-in privacy, does not. With that in mind, which of them sounds like it might be Trump’s kind of crypto? Quite. (More on this in an excellent piece by crypto investor Aaron Brown of AQR Capital Management.)

Bitcoin has long been the ordinary person’s gateway to crypto, just as Netscape was our 1990s gateway to the internet. But with new regulation broadening the connection between the traditional financial system and the crypto economy, it may soon “lose its economic rationale,” Brown says. A reminder of how fast the seemingly mighty can fall: in the mid-1990s, Netscape had a 90% market share in the browser market; by 2006 it was down to under 1%.

Merryn Talks Money has mostly been wrong on Bitcoin—there is an old tweet of mine doing the rounds on social media (thank you to my detractors on X for the time devoted to shame-mining my very old posts). It’s below. You get the idea.

But even so, we still can’t quite bring ourselves to leave gold behind.

As everyone knows, it’s a reserve asset that comes with 3,000 years of protecting savers from the kind of disasters endemic to fiat money. And while manias can last longer than expected, they do end, so there might eventually be a wrong answer to the Bitcoin or gold question.

That said, there’s a very reasonable compromise available to all of us: both. John Stepek discussed this in his Money Distilled newsletter on Nov. 11 but there is more in this podcast: Listen in as ByteTree’s Charlie Morris explains why holding both gold and Bitcoin (a little more of the former than the latter, obviously) makes sense.

This week in the world of money
Bloomberg Editorial: Labour tax plans are clear. Its reform agenda isn’t.
Money Distilled: UK budget could be a drag on housing market.
UK to spell out crypto plans as startups eye benefits in US under Trump.
Bloomberg Opinion: Why a money “happiness plateau” doesn’t exist.
How to save a lot of money and still have a posh ski holiday.
Three things to keep an eye on
The nuclear renaissance: We might not know quite where Bitcoin is going, but we do know mining it uses significant amounts of energy. We know the same about artificial intelligence (more on that in our new podcast) and for that matter domestic manufacturing. The coming Trump administration’s plan involves more of all three of these, so it will need cheap energy, too. We’ve talked a lot about the only real route to cheap electricity long-term being nuclear power, and we now see everyone else coming around to our way of thinking. The Biden administration is pro-nuclear, Trump (and his tech bros) are pro-nuclear, private equity is pro-nuclear and this week at COP29 six new countries endorsed a declaration to triple nuclear energy by 2050. That takes the total behind the movement to 31. No wonder the spot uranium price is rising. Long-term investors should take note.

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Financial repression: Trump is definitely a financial nationalist. But it looks like the UK’s new chancellor of the exchequer is, too. Rachel Reeves just announced a plan to create a group of pension “megafunds” in a bid to “unlock” £80 billion ($101.6 billion) of council workers pension cash to be invested in UK-based infrastructure and small businesses. That last bit isn’t mandatory, yet. But consultations suggest Reeves would like 30% of the assets under management to go the government’s way, and that requiring it is firmly on the cards if they don’t—and not just for public sector pensions. Britons’ Self-Invested Personal Pensions and Individual Savings Accounts may well end up in the line of fire, too. We often remind listeners about the old joke regarding robbers and banks: Why do you rob banks? Because that’s where the money is. The same is true of governments and pensions.

Keeping your tax bill down: In our round up recording this week, we ask what Humza Yousaf and Nicola Strugeon have in common. This is a trick question. It isn’t just that they are both failed first ministers of Scotland. It’s that they have both set up personal service companies to run their non-pay-as-you-earn earnings through. Using these is a well known way to cut tax bills, something it seems some may want to do even if they introduced those very taxes. How does it work and can you do it as well? John Stepek and I discuss here.

How many people have crypto on the Continent?

10%

The percentage of Europeans who have invested in at least one crypto currency. In the more risk-friendly US, that number is 16%.

—Source: Deutsche Bank

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Merryn Somerset Webb is a senior columnist for Bloomberg Opinion, covering personal finance and investment, and host of the Merryn Talks Money podcast. Previously, she was editor in chief of MoneyWeek.