11/22/2017 - The Great Debate About Bitcoin, Cryptocurrencies and Gold – David Kotok & Others
David Kotok: “Following up on our recent commentary, and with permission, we continue to quote the excellent work of Nick Colas and Jessica Rabe of DataTrek Research .. ‘Do cryptocurrencies like bitcoin meet the definition of an ‘Asset class’ for investors that care about that designation? At the moment, the answer has to be ‘No’. A few reasons why:
• They are too small ..
• Cryptocurrencies do not yet have as robust a regulatory framework around them as stocks, bond, currencies or other traditional asset classes ..
• Cryptocurrency exchanges and wallet operators around the world operate with varying levels of know-your-customer and anti-money laundering laws. There is no absolute assurance, for example, that a bitcoin you just purchase online didn’t have a member of the North Korean military or Iranian Revolutionary Guards ultimately on the other side of the trade ..
• An asset class needs some level of homogeneity among its constituent investments. GM and Facebook are wildly different companies, but the equity of each represents the same type of claim on residual corporate cash flows. Bitcoin and Ethereum – the two largest cryptocurrencies by market cap – are not the same in terms of structure or purpose. In fact, they aren’t even close ..
• There is not enough history to assess the price relationship between cryptocurrencies to other asset classes.’ ..
Meanwhile, Kerry Smith, a retired Stanford law graduate and serious student of the electricity grid, emailed an observation about how crypto is a large consumer of electricity. He notes that risk. We contrast it with a gold linked token which can use block chain successfully but is not subject to the electricity constraint. We shall see if gold tokens catch on. The turmoil in the Middle East may be the catalyst.”
Oliver Garrett in Risk Hedge:
#1: Cryptocurrencies Are More Similar to a Fiat Money System Than You Think.
#2: Gold Has Always Had and Will Always Have an Accessible Liquid Market.
#3: The Majority of Cryptocurrencies Will Be Wiped Out
#4: Lack of Security Undermines Cryptocurrencies’ Effectiveness.
#5: Hype and Speculation Continue to Drive Cryptocurrencies’ Value
#6: Cryptocurrencies Do Not Have Gold’s History as a Store of Value
Mike Novogratz on Bitcoin and Cryptocurrencies:
“This whole revolution came out of a breakdown of trust. It came out of the ’08 financial crisis when people said we no longer trust financial institutions, we don’t trust governments and, in parts of the world, today still. If you’re in Venezuela, it’s really hard to trust the central bank, or in Zimbabwe. So, the decentralised revolution, which Bitcoin is really the poster child of, is a response to the breakdown in trust.”
