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Bitcoin vs. Gold (Video)

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Peter Schiff compares the cryptocurrency Bitcoin vs. the precious metal Gold. Which one is the better investment?

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Summary: In his latest video, Peter Schiff shares his thoughts on the bitcoin mania that is sweeping the world. After rising from less than $20 to more than $600 in one year, many investors are wondering if bitcoin might be worth the risk. Early adopters pitch bitcoin as “gold 2.0” – a digital currency that cannot be manipulated like fiat money. Bitcoins are even “mined,” similar to physical gold and silver. However, Peter explains why bitcoins still fail as a substitute for gold and strongly urges investors to avoid this risky new currency. Bitcoin could very well have already hit its top, but Peter is confident gold is still well below its future record highs.

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28 thoughts on “Bitcoin vs. Gold (Video)

  1. Todd says:

    BitCoint is nothing more than a Ponzi scheme, simple as that. I spoke with the big wigs there and its all smoke and mirrors. Plus they get a % of each transaction!

    • Jay Stevens says:

      @Todd. You have no idea what you’re talking about… There is no centralized organization so there are no “big wigs” to talk to.

  2. Lucas Mourao says:

    Good points, but. When Peter Says that gold has not yet reached its record high, what is he basing this value on? American dollars? But in a scenario of hyperinflation you can say the same about a can of beans. So how exactly is Peter measuring this record high? How will gold be compared to other currencies/commodities? Can one really profit from gold in Us dollars given its condition?

  3. Dalmazio B. says:

    Interesting listen Peter. I’m a big fan of your work, but here’s why I don’t agree with you regarding Bitcoin.

    First, you rightly say that gold was first a commodity in ancient times, before it became money. It was shiny, beautiful, used as jewelry, a symbol of wealth and power, etc. and it became a commodity (and later money) because it was increasingly in demand.

    Fast-forward a few thousand years. Enter Bitcoin. What is it that gives Bitcoin its value? Is it shiny and beautiful? Is it malleable and easy to form into jewelry? Does it have other technological uses in industry? No.

    But this is the thing to understand: Bitcoin emerged out of the necessity of having a currency that was not controlled by government or central banks. Bitcoin emerged, precisely because people recognized that government and central banks were debasing their currencies and stealing their wealth. This is what has given Bitcoin its value. Necessity being the Mother of invention, Bitcoin emerged once the technology existed to support it, as a way to do an end-run around the fiat banking system.

    The only problem with gold is that, the fiat central banking system controls it, artificially suppressing its price through paper gold derivatives and various other means. And as long as they exist, they will continue to do so, because gold threatens their monopoly on currency.

    This is why Bitcoin is so important. It promises to make central banking and fiat money obsolete, because central banks and governments cannot control it easily (they may try to influence it by buying into it in large quantities, and then sell off to create artificial price instability, and scare people away from it, but that’s about it). This is something that gold cannot do because it is physical. It can easily be controlled in the physical world with people, guns, and force.

    When central bank fiat money starts to become obsolete (whenever that is), they will cease to have power even over suppression of the silver and gold price, and silver and gold will skyrocket to their true market values, thanks to technologies like Bitcoin.

    In other words, Bitcoin, promises to become the dragonslayer, and free silver and gold from the clutches of the dragons grasp. And in stark recognition of this heroic feat, it would continue to exist alongside silver and gold as a technology of necessity to prevent the dragon of fiat central banking from ever seeing the light of day again.

    All hail Bitcoin, silver, and gold!

    • Daniel Krol says:

      I will respond concisely but I can expand on request. You are glossing over finer points. Prices occur because of valuation. Valuation happens on an *individual* level, either for consumption, or anticipation of somebody else’s valuation. It’s about rank-ordering a single person’s potential courses of action.

      A single person can decide to exchange something of established value for a piece of jewelry, because they like the jewelry. A single person cannot decide to exchange the lack of existence of the Bitcoin economy for the existence of the Bitcoin economy. Sure, in aggregate if the description you gave comes to fruition, everybody is better off. But that’s not the manifestation of valuation. That’s not an individual’s decision.

      The closest thing on an individual level is for you to decide to accept bitcoin because you believe that it will set you free from government control in how you spend. But that decision is still based on the fact that somebody else will accept it when you decide to spend it. You can’t escape this.

  4. Hal Taylor says:

    Very interesting. But I think you underestimates the intrinsic value of bitcoin. 1) If bitcoin becomes a universally adopted alternative currency
    then with a finite number permitted to exist (21M) the current number of wallets, about 1M, will have to expand to at least a billion (a factor of x1,000).
    2) at the current bitcoin price ($750) there is insufficient liquidity ($18B) to allow everyone to have a wallet with even only a $100 in it. Achieving that level of
    liquidity would require a bitcoin price of $4166. And that’s not including the corporate and merchant wallets which would presumably be required to store thousand or millions of dollars.
    3)Can bitcoin can be undermined by creating a new digital currency? Yes, and anyone can just start a new credit card brand and undermine Visa, too.
    Discover and Diners have been trying to do that for years. Once you’re a major brand sitting on top of a huge infrastructure it’s very easy to stay on top.
    It’s true, however, that anyone can create a new digital currency. There are about fifty different cyber currencies in existence right now. Why aren’t they in general use? Because the early adopters and smart money have voted with their feet to annoint bitcoin as being the best cyber currency solution.

  5. Asghar Shah says:

    True no “intrinsic value”or store of Value the Tulip was a pershable commodity and lost it’s Value ! Bitcoin is a vanishable code that rests on a hard drive with no recourse ! each time I go to these BitCoin Tech meetings in San Francisco and the SV the more it looks like the Tulip Bubble to me !

  6. Martin Burke says:

    You can always trade your Bitcoins for gold. http://www.coinabul.com

  7. Does DaVinci’s Mona Lisa have intrinsic value? Very little I should think, rather it has huge “extrinsic value,” i.e., as an artifact of sublimity and as a global tourist attraction.

    Bitcoin has zero intrinsic value, rather its value is extrinsic, and lies in the facilitation of global commerce and as an onramp for the half of the world’s population who are unbanked.

    Indeed, you express (fluently, I might add) most of the extrinsic values of bitcoin in the opening of your presentation, and the breadth of the newly-emerging exchange markets is evidence of this concrete value underlying this world-changing cryptocurrency.

    Long live gold! and welcome to bitcoin.

  8. A S Guerrero says:

    I’ve heard of bit coin for awhile now and really enjoyed Peter Schiff views on the ” digital currency ” . The pro’s & con’s were explained very well ! Thank – You

  9. roger davidson says:

    If you play back to your video and listen very carefully you can see where Bit Coin is going to be a major threat to all currency world wide. I think the Facebooking tweetering mind set are just as willing to accept Bit Coin as they are dollars. Time will tell. The problem with gold is the dealers…I have never meet a more unusual group. Right up there with used car salesmen.

  10. Irdial says:

    Peter, please read this briefing document so that you understand what Bitcoin actually is, rather than conflating it with gold:

    http://www.scribd.com/doc/169601334/Understanding-Bitcoin

    The fact that some people say it is “gold-like” is completely irrelevant. Most people don’t have the capacity to properly characterise Bitcoin, and their opinions should be set to one side.

  11. Konrad says:

    Peter,

    being accepted by other people is value of Bitcoin … but … unlike Gold, BitCoin doesn’t have one important property – which is … its supply is … UNLIMITED, yes … you say you can only create 21 million bitcoins, but .. it is not true .. after small modification of algorithm .. you can have BTC2 (LTC), and .. another algorithm .. and you have BTC3, BTC4, …. BTC Infinity … the supply of crypto-currency is … UMLIMITED and this is what will drive the price od BTC to 0, not that it doesn’t have value

    Konrad

    • Gdw says:

      This is being proven wrong in real time. There already ARE competing “digital” currencies. Don’t forget that the used is also a largely digital currency now, but that’s besides the point.
      The other crypto type currencies are free market competition in currency, and the market is speaking, and speaking LOUD.
      Bitcoin can’t just be “replaced” or devalued by the existence of competitors, especially not with it’s ongoing development.
      That is, to say, innovation. It’s been open source from the get go, so anyone can see and copy and modify the code. What they can NOT do, however, is force mass adoption.
      The only way to take out bitcoin is to create a clearly superior alternative.

      Also, keep in mind that what bitcoin is, largely, is a system.

      Saying that Bitcoins supply is effectively unlimited because of the potential of similar alternative systems is exactly the same as saying that gold is effectively unlimited because people can use silver, or any other mineral, or element, in a similar system of exchange.

    • Hal Taylor says:

      You or I could start a new blockchain tomorrow and begin mining BTC2 coins and trading them on an exchange but no one would pay attention to it since they would not be interchangeable with the real BTC. The same for BTC3…BTCn. The only reason for creating a new blockchain would be a liquidity crises which would occur when there are not enough bitcoins to satisfy the demands of commerce but with a total of 2000 peta units of value in the system this is a long way off.

  12. Steven Lawrence says:

    There is one thing that you are missing, Mr. Schiff, and that’s demand for currency when existing currency hyperinflates or disappears altogether from circulation (catastrophic currency failure either way). This always gives rise the demand for a medium of exchange – ANY medium of exchange – not because of intrinsic value, but due solely to the fact that barter is untenable. Look at the rise of scrip (local currencies, public and private) in the US and around the world during the Great Depression. It is quite possible that demand for Bitcoins could skyrocket (all valuations determined locally, not internationally) in the event the existing fiat currencies imploded — as all of them will eventually.

  13. ryan says:

    how about the value of being able to transact instantly and cheap across boarders? or get money out of a country with capital controls?

    What about the reduced fees you pay ( cutting out banks and credit cards) for an online payment

    Is this not value unique to digital currency?

  14. Adrien says:

    While bitcoins have a pre-determined inflation rate, nothing stops people from issuing other digital currencies to compete with or compliment the BTC. As mania sweeps and BTC continues to climb on the low-volume markets, goods and services priced in BTC will experience price deflation, reducing liquidity of BTC. This will encourage people to create alternative currencies to compete with BTC and provide more liquidity in the digital currency market. This propensity for the market to develop these alternatives is akin to printing fiat, relegating the “value” of BTC to the faith people have in its ability to buy stuff. . . not very different than other fiat currencies.

  15. Mr. Stacker says:

    If or when the lights go out for however long and I find you at my farm yard wanting to buy chickens with your ‘Bitcoin memory stick’ or Bitcoin beads, I have a surprise for ya…..you get “Chicken on a memory stick”.
    But if you approach me with chicken feed, pork/beef, fresh fruits/veggies, spices, silver, gold, even a BIC lighter (I can trade it) surprise…you get to eat a real chicken tonight.
    OK! if the memory stick is REALLY nice I’ll let you have a scoop of chicken manure…..Bring your own scoop.
    Any questions?

  16. steve says:

    I think the fact that its not linked to any monetary exchange is what makes it interesting, it offers anonymity BUT if it catches on the Fed will demand full disclosure and regulate it like the banks, the days of privacy are gone for good, they’ll regulate it or ban it!

    In one of the previous post it was written that “Bitcoin will be a threat to currencys world wide but I believe there is very little chance that this will be alowed to happen. The monent it becomes a threat to the local currency it will be banned.

  17. Robert M Stahl says:

    Bitcoin is an evolution that is, formally, and conceptually, symmetrical, the single requirement for systemic change, of evolution in system theory, or a transformation in paradigm. Evolution is drift, and with corruption so rife in society and as a product of history, as Karen Hudes points out eloquently that the corruption we don’t see abaiting over time, is driven by gold ‘backwardization’ and is an ongoing crime. Pure and simple, Bitcoin is immune from the advent of asymmetric crime that keeps the old system is a state of convulsion, like Paul Craig Roberts reports, and Gregory Bateson defines.

  18. Marco Victor says:

    Good overview Peter. Very logical as always.

    I would not touch Bitcoin. It is an interesting experiment to watch unfold. Not clear who controls it at the top.

    Thanks for weighing in on the Bitcoin debate.

    MV

  19. Steve says:

    I invest in both gold and bitcoins. This is the most balanced presentation I have seen for someone who is not a supporter of bitcoin, so, Mr. Schiff, thank you for that. There is one advantage of bitcoin over gold that you did not mention.

    That was a great explanation of private bank currencies with receipts for gold deposits circulating as money. However this paper representation of gold has a flaw, that there is really no way to verify that the issuer can redeem all outstanding receipts. The temptation will always be there to circulate notes that are not backed by gold, and if the gold warehouses have to exercise political influence to accomplish this then they will. This is exactly how we went from gold to fiat in 60 years or however long it took.

    This is to me the advantage of bitcoin: Every transaction, starting with #1 is recorded in the block chain, and before any new transaction is added the whole block chain is examined to make sure that the current one is not a double spend. There is zero possibility of inflation with bitcoins.

    All of Peter’s criticisms of bitcoin regarding uncertainty and volatility are correct. They also apply to gold however, meaning that gold is also not money. I think that both have a place in the investors portfolio.

    • Bill Clopton says:

      Great explanation, Peter. I think I’ll avoid $ and Bitcoin. Neither have any intrinsic value. Bitcoin could go to zero for some of the reasons you mention, and since governments hate gold, it is safe to assume they will hate Bitcoin. They have means and opportunity to crash the Bitcoin system, as it records the identity of every previous user.
      The governments may be able to temporarily manipulate gold and silver, but will never be able to render them worthless.

  20. Bill says:

    I originally bought Bitcoin years ago because I thought it was an interesting technological innovation. To me it was valuable to have Bitcoin just because it existed. I was not planning to flip to to someone else for a profit. I don’t think Peter gives enough intrinsic value credit to people like me.

  21. MoreFreedom says:

    Mr. Schiff understandable comes down on the side of metals over bitcoin in the competitions among currencies. He has a financial interest in doing so, as well as his opinion.

    To me, the problem with bitcoin is that government can prohibit the ability to trade your bitcoins for dollars (say in the US). Getting around this problem (going to another country to do so) is expensive. It’s not hard to find people willing to trade dollars for gold. Another problem with bitcoin, is that its value fluctuates wildly, because of psychology (a mania as Schiff says, and I agree) and the fact that only a small portion of them are bought/sold.

    The problem with gold, is the government may decide to confiscate it (as they did under FDR) for below market value. But it’s easy to trade for fiat currencies.

  22. DWornock says:

    If the reason for having bitcoins is as an investment, I agree bitcoins may be a poor investment.

    However, the primary purpose of bitcoins is a medium of exchange for businesses to sell products or services. The businesses quickly convert bitcoins to dollars or another currency. Therefore, the variable price of bitcoins doesn’t much matter.

    If the price of bitcoins is varying greatly, with computers,it only takes several seconds for a business to convert the bitcoins they accepted as a payment for goods or services to a currency. Of course, they must pay a fee to convert but like credit card fees that is included in the price.

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