Kris’ note: In today’s Dispatch we publish the second part of a phone conversation with colleague and investment expert Nick Giambruno from his home in Argentina. Nick is the chief analyst of Casey Research’s flagship advisory, The Casey Report and its premium Crisis Investing advisory.
In this part of the conversation, Nick explains why corporations will have little choice but to add bitcoin to their balance sheets. And he explains why bitcoin’s volatility will eventually subside as it becomes a more widely held asset.
Before we get to that, a brief introduction to Nick is in order. In his premium investing service, Nick has helped his readers to gains of 170%, 214%, 406%, 996%, and even 2,123%. Of his current open positions, the best-performing are up 326%, 409%, and 1,122%.
He writes about geopolitics, investing in crisis markets, the global cannabis market, international banking, second passports, surviving a financial collapse, and the rise of bitcoin.
He has lived in Europe and worked in the Middle East, including in Beirut and Dubai, where he covered regional banks and other companies for an investment house. Nick is a frequent speaker at investment conferences around the world.
Now read on for part two of this three-part interview series…
Dispatch: It’s reasonable to say that bitcoin has moved closer to the mainstream over the past year. But it still doesn’t feel as though it’s quite there yet? If that’s the case, will it really ever become mainstream?
Nick Giambruno, chief analyst, Crisis Investing: It depends what you mean by “mainstream.” If you mean how aware people are of bitcoin, pretty much everyone in the world has heard of it by now. So it sure seems like something that’s mainstream.
But – and this is what you may be getting at – there is often a massive gap between hearing about bitcoin and truly understanding bitcoin. And more importantly, its potential. So with that in mind, I don’t think the proper understanding of bitcoin is anywhere near mainstream, which is why there is still such an enormous opportunity in it.
Will it become mainstream in that sense, in terms of people understanding it? I think so, and it’s well on its way.
Dispatch: That’s interesting. I must say you sound very convinced about this. Why is that? Why do you believe it so strongly?
Nick Giambruno: Because the economic incentives that attract people to harder money are impossible to resist.
That’s why the history of money is the history of the hardest asset winning and why gold has always reigned supreme. But with the arrival of bitcoin, which is even harder than gold (meaning that it’s more resistant to inflation), now gold has a serious competitor for the first time in 2,500 years.
Remember, the monetization of the new monetary good is genuinely unlike anything anyone alive has ever seen before.
It took gold centuries to achieve monetization. Bitcoin has a good chance of undergoing monetization in a much shorter period. With a market cap of roughly 7% of gold’s – it’s already well on its way.
In other words, bitcoin is not an established money but an emerging one. But I doubt it will stay as an “emerging” or “niche” money for long.
Dispatch: Can we talk about that a bit more? It’s undeniable that individuals were the first to adopt bitcoin. But over the past year, many businesses have become more involved. In fact, many have added bitcoin to their balance sheets (Tesla and MicroStrategy are the two most well-known). You’ve said before that adoption by businesses will be the big gamechanger for bitcoin. In which case, what do you think is stopping other big companies from following Tesla’s and MicroStrategy’s lead?
Nick Giambruno: This goes back to what we were talking about before. I don’t think they understand bitcoin yet, or the problems that it solves. But, sooner or later, they – like everyone else – will come to a similar conclusion – they’ll understand it. It’s just a matter of time.
But the longer they wait, the higher the price will likely be. Bitcoin tends to teach people hard lessons in the concept of opportunity costs. And don’t forget it’s not just corporations. El Salvador recently became the first country in the world to adopt bitcoin as its official money. It won’t be the last.
That means the race is officially on to accumulate the hardest money mankind has ever known – and nobody will want to be last…
Dispatch: And what does this mean for the average person?
Nick Giambruno: Something incredible. It means they have the chance to front-run nation-states and corporations, as the world moves towards a new global monetary standard. I don’t think I’m exaggerating when I say that it’s an enormous once-in-a-millennia opportunity… and the biggest investment story I’ve ever seen.
Dispatch: Just getting back to the businesses that have added bitcoin to their balance sheets… Why have they done so? What is the benefit for doing so?
Nick Giambruno: By moving some of the assets on their balance sheets into bitcoin – which governments cannot arbitrarily inflate – these corporations preserve their purchasing power and protect their shareholders from inflation.
That’s at a minimum.
They can also reap profits by switching over to a harder and superior form of money before the rest of the world does.
Inflation is no small consideration…
Dispatch: Inflation… that’s such a hot subject right now, right?
Nick Giambruno: Absolutely. In the ongoing COVID-19 hysteria, governments worldwide have thrown out the last semblances of sanity – fiscal, monetary, or otherwise.
They have unleashed money-printing like the world has never… never seen before in history. And not only do they show no signs of stopping, but all signs point towards ever-increasing money-printing for the foreseeable future.
That’s why inflation is the biggest threat, not only to your financial well-being, but to the bottom line of private companies.
Dispatch: Forgive me if I stay on this subject, but I think it’s important, especially when we’re talking about the idea of private businesses adopting it. So a devil’s advocate question on the issue of bitcoin’s volatility…
If businesses have avoided adding bitcoin to their balance sheet due to bitcoin’s volatility, does a less volatile bitcoin make it unnecessary for them to own it? Why wouldn’t they just continue to hold Treasury bills?
Nick Giambruno: I’ll answer that, but let me clarify something first: “hardness” does not mean something that is necessarily tangible or physically hard, like metal. It means “hard to produce.” By contrast, “easy money” is easy to produce. The best way to think of hardness is “resistance to inflation,” which helps make it a good store of value – an essential function of money.
So it’s necessary for anyone – corporations, governments, or individuals – to hold hard assets to preserve the purchasing power of their savings over time. And bitcoin is the world’s hardest money.
With that in mind, it’s not hard to see that Treasuries are most definitely not hard assets. On the contrary, they are very easy for the U.S. government to create, and it has been doing so in the trillions.
Holding Treasury bills doesn’t protect you from inflation; it exposes you to it. Treasuries are nothing more than the liabilities of a bankrupt government – a terrible thing to hold for the long term.
Now let me add a word about bitcoin’s volatility, which you mentioned. The bitcoin phenomenon is the birthing of an entirely new form of money. We’re talking about the emergence of a new asset that became a significant global money in less than a decade.
There is nothing else comparable. Bitcoin is a completely new animal and doesn’t fit into any financial or economic paradigm.
I’ve heard bitcoin likened to the platypus.
Dispatch: Really? I’ve not heard that. How do you mean?
Nick Giambruno: I know it sounds like a weird comparison. But when Europeans discovered the platypus, they wrote letters to folks at home, trying to describe this odd new animal.
People thought the platypus was a joke – because it didn’t fit into the classification of animals at that time. But it was a real animal. People just didn’t understand it because it was a new thing that didn’t fit into the established paradigms.
Bitcoin is much the same. Here’s something that nobody alive has ever seen. You have a new asset that represents the invention of genuine digital scarcity – that’s undergoing the process of becoming global money.
Monetization doesn’t happen overnight, and it’s inherently a volatile thing. Bitcoin went from pennies in 2009, to $64,000 earlier this year, making it the best performing financial asset over the past 12 years.
It’s as if you discovered gold before the world understood that gold was useful as money.
Dispatch: I was thinking that as you said it. It’s as though we’re getting the chance to buy “gold” before anyone has really figured out the true value of gold. I like that.
Nick Giambruno: That’s it. And right now, bitcoin’s volatility is mainly to the upside. It does go down, of course, but it’s mostly going up when you zoom out. That’s because millions – soon billions – of people around the world will adopt it as money due to its total resistance to inflation and other monetary properties.
Once it has established itself more as money, the volatility will smooth out – and the price will be much higher.
So you want to buy bitcoin now and hold onto it until the rest of the world figures it out.
One important thing here. Can I just mention a word or two on the best way to hold bitcoin?
Dispatch: Of course. This is important information. Go ahead.
Nick Giambruno: Okay. Once you buy bitcoin, you must hold it on your personal wallet and not on an exchange. This is because if you hold your bitcoin on an exchange, it’s not really bitcoin, but a bitcoin IOU, which could vaporize if the exchange goes bust or gets hacked. Those are real possibilities.
Dispatch: Ah yes, I remember the Mt. Gox hack a few years ago. Someone hacked that exchange and took millions of dollars’ worth of bitcoin. So holding off-exchange makes sense.
Nick Giambruno: Exactly. That’s why I recommend all subscribers of The Casey Report and Crisis Investing to hold their bitcoins in their personal wallets. For example, Blockstream Green for your smartphone and Electrum for your laptop are good choices… but there are others.
When you own the bitcoin in your own wallet, it’s like having a physical gold coin in your hand. It has no counterparty risk.
Kris’ note: Tune in tomorrow where Nick explains why although he’s a strong believer in bitcoin, he doesn’t feel the same about the thousands of altcoins available to trade on the market. In fact, Nick compares them to nothing more than “arcade tokens”!
For many, that won’t be a popular view. But check out tomorrow’s Dispatch as Nick explains exactly why he holds that view, and why it makes the case for bitcoin even stronger.