Schiff on Mining Network: Bitcoin is a Zero-Sum Game

Last week, Peter joined Dominic Frisby and Michael Oliver- both big names in the alternative finance space– for a spirited discussion on the merits of gold and Bitcoin. Hosted by the Mining Network, this webinar captures the common ground and stark disagreements held by each participant. This debate is especially relevant given gold’s surge to over $2,850 this week.

To kick off his remarks, Peter highlights the inherent advantages of gold over Bitcoin in the digital era. He argues that while Bitcoin is touted as digital money, gold can just as easily be digitized through tokenization—a process that mirrors the historical issuance of paper notes backed by gold:

I don’t think that Bitcoin is digital money or money in the digital economy. I think that you can easily digitize gold if you want to have money that you can transfer electronically. We could tokenize gold—any company could do it—the same way that banks or goldsmiths issued paper notes backed by gold so people didn’t have to lug their gold around. They could leave their gold with a blacksmith or eventually a bank, and the bank would issue a note that represented ownership of that gold. The bearer of the note could go get the gold whenever they wanted, but they could also circulate the bill as a medium of exchange, and that’s the beginning of currency.

In his view, gold’s ability to serve as a reliable medium of exchange is rooted in its stability and historical significance—traits that Bitcoin lacks:

Currency derives its value from the money that backs it up, and in the same way that we printed paper, we could create a digital token that would represent ownership of gold. … People can transact in gold online faster and at far less cost than they could with Bitcoin—assuming anybody tried to transact in Bitcoin, but very few people do because it’s very expensive and very slow and it’s very volatile. 

He then launches into a critique of Bitcoin’s role in the financial landscape, dismissing it as little more than a speculative asset:

Bitcoin isn’t a unit of account for anything—it’s not used as a medium of exchange; it’s used to speculate. People buy Bitcoin because they think the price is gonna go up and they sell it to other people who think the price is gonna go up, but it’s not used as money. It’s used as a speculative trading token, a collectible item. 

Peter argues Bitcoin functions as a zero-sum game that misdirects capital from productive uses into speculative bubbles. Bitcoin is an industry driven solely by hype and short-term profit, while gold weathers inflation and political uncertainty:

Money is the most marketable commodity—but Bitcoin isn’t a commodity at all. People buy it; people have made a lot of money who bought Bitcoin, but people are gonna lose a lot of money who don’t sell Bitcoin. It’s a zero-sum game; some people make money at the expense of others who lose it. But of course there’s a lot of money being wasted on the whole ecosystem and the industry—a lot of capital is being misdirected to crypto because it’s a bubble coming out of industries that we really need, and we just posted today that we have a monthly trade deficit because we’re wasting our money on crypto.

Peter gives his outlook for the future, contrasting the inevitable rise of gold with the uncertain fate of Bitcoin. He warns that while gold will continue to appreciate as currencies are debased, Bitcoin remains a speculative gamble:

The money supplies are gonna keep growing, so you’re gonna need more fiat currency to buy an ounce of gold. That’s been continuing for the past 25 years—the price of gold has risen more than the S&P 500, which means the real value of the S&P has actually gone down if you price it in real money. But Bitcoin could do anything—it could go up or it could come crashing down. I don’t own it, and I think there are better bets. 

If you missed it, make sure you listen to Peter’s latest analysis of gold’s recent all-time highs.